Silicon nanocrystals were formed in SiO2 using Si ion implantation followed by thermal annealing. The nanocrystal-doped SiO2 layer was implanted with Er to peak concentrations ranging from 0.015 to 1.8 at.%. Upon 458 nm excitation, a broad nanocrystal-related luminescence spectrum centered around 750 nm and two sharp Er luminescence lines at 982 and 1536 nm are observed. By measuring the temperature-dependent intensities and luminescence dynamics at a fixed Er concentration, and by measuring the Er concentration dependence of the nanocrystal and Er photoluminescence intensity, the nanocrystal excitation rate, the Er excitation and decay rate, and the Er saturation with pump power we conclude that: (1) the Er is excited by excitons recombining within Si nanocrystals through a strong coupling mechanism; (2) the exciton -Er energy transfer rate is >106 s-1; (3) the exciton-Er energy transfer efficiency is >60 %; (4) each nanocrystal can have at most ~1-2 excited Er ions in its vicinity, which is attributed to either an Auger de-excitation or a pair-induced quenching mechanism; (5) at a typical nanocrystal concentration of 1019 cm-3, the maximum optical gain at 1.54 mm of an Er-doped waveguide amplifier based on Si nanocrystal-doped SiO2 is ~0.6 dB cm-1; (6) the effective Er excitation cross-section using this nanocrystal sensitization scheme is seff»10-15 cm2 at 458 nm, which is a factor 105-106 larger than the cross-section for direct optical pumping of Er. This enables the fabrication of an Er-doped nanocrystal waveguide amplifier that can be pumped using a white light source.