Don't worry about sounding ignorant. This whole dieting/getting healthier thing can be confusing if you've never thought or learned about it before.
Water retention works a lot of ways and it's different for everyone.
One thing is that if you're not drinking enough water, your body holds on to what you give it ... stores it up, camellike. Also if you eat too much salt, it can cause your body to store water as well.
Also if you work out really hard, your muscles will tend to hold on to water for anywhere from several hours to several days. That's one of the reasons that muscles swell during and after workouts ... water retention.
So if you drink more water, your body doesn't feel starved for water (dehydrated) and is more willing to circulate and let go of water, rather than hoarding it in the tissues. Drinking more water also helps flush out the salts and minerals that cause your body to retain. So overall drinking more water is good for you.
(There is such a thing as water intoxication where you can drink *too* much water. It's highly unlikely that it will affect most people who are drinking a gallon or less per day. If, however, you take blood pressure medication or blood thinners or any medication that's for heart or stroke, you should check with your doctor. They can increase the effects of water intoxication and be dangerous. But for most people in good health, it shouldn't be an issue.)
Hope that helps!