I think it's a concentration of white blood cells flooding the area, if you have bumped it. They are trying to heal you, I think.
You can usually tell just by pressing on the swelling bits, and if it feel full of fluid, then it's probably just that fluid. I think it is a bit more clear-colored that regular RBC & WBC concentrations of blood.
A doc can help relieve the pressure if it get tooo bad.
"Water on the knee" can be caused by injury, overuse, arthritis, and other stressors. There are different treatments, dictated by the cause of the particular patient's condition. For a clear, concise description of causes and treatments, go to www.mayoclinic.com/health/water-on-the-knee/DS00662