This water sensor module is part of the Twig system. This sensor works by having a series of exposed traces connected to ground and interlaced between the grounded traces are the sens traces. The sensor traces have a weak pull-up resistor of 1 MO. The resistor will pull the sensor trace value high until a drop of water shorts the sensor trace to the grounded trace. believe it or not this circuit will work with the digital I/O pins of your Arduino or you can use it with the analog pins to detect the amount of water induced contact between the grounded and sensor traces.

Features:
Grove compatible interface
Low power consumption
2.0cm x 2.0cm twig module
High sensitivity

Applications Ideas:
Rainfall detecting
Liquid leakage
Tank overflow detector

http://www.seeedstudio.com/wiki/Grove_-_Water_Sensor