Using water affects smoker temperature in two important ways. The first is as discussed above in that it acts as a heat sink (like sand, stones, any other heat absorbing material). Any of which help even out temperature fluctuations, especially when opening/closing smokers.
The second effect has to do with evaporation wherein evaporation dampens the overall rise in temperature within the smoker. I don't know the exact science behind this, but you can easily prove it by the experiment I did awhile back. Add several large roaster foil pans full of water to a propane smoker and run on high. After several hours running, you will see that the maximum temperature that the smoker can reach will be significantly less than running the smoker with the stock water pan (or no pan). My result was maximum 252 degrees with pans, over 400 with no pans. Of course, over time, without refilling the pans, the effect of evaporation will diminish until all of the water evaporates.
Sand or other material is less maintenance than checking and adding water and has, in my opinion, the most impact on even operating temperatures. That said, for an inexpensive charcoal water smoker (i.e., Brinkmann) using water will have the added benefits of the evaporation. Of course, you have to make sure it doesn't go dry (my lesson with a few ruined ribs years ago). I have a 40lb, concrete heat sink in my GOSM mounted above the stock water pan and I use both.
As to any real impact water has on keeping meat moist, I personally don't think the effects are of any real significance. Meathead (Craig Goldwyn) of amazingribs.com has several very interesting articles discussing evaporation and moisture retention in smoked foods.