There are three types of water in a typical system; emulsified water, free water, and dissolved water,Let's take a look at them one by one.
Emulsified water
Emulsified water is water that has mixed with the oil. Even though emulsified water in oil is in a free form, it will basically remain in this mixed state and not separate and settle on the bottom like free water. Emulsified water must be managed.
Free water
Free water is separate from the oil in the system and can be seen by the naked eye. Most oils' specific gravity is less than that of water, so water usually stays at the bottom of the reservoir or system. Because of this reason, free water can easily be decanted, or removed by draining through a reservoir drain port. Decanting is considered as a smart move, if available, even when using a vacuum dehydration system to speed up the water removal process.
Dissolved water
Dissolved water is a measurement of the amount of water that dissolved into the oil. When the temperature of oil rises, the capacity to absorb water rises, but has a limit. After all free and emulsified water has been removed from the oil, the vacuum dehydration equipment then focuses on separating dissolved water. By then almost all types of water in your system has already been ruled out.