The Clementine and Lunar Prospector spacecraft had detected lots of hydrogen on the Moon, which strongly argued for the existence of water. Traces of water was also found in moon rocks brought back by the Apollo mission. However, the detected hydrogen might have been from sources other than water or could just be unattached protons from the solar wind that somehow managed to stick to the Moon, and the water in the moon rocks might have been from contamination when they were brought back to Earth, so the existence of water on the Moon has continued to be in question.
It is now much less in doubt thanks to the Moon Mineralogy Mapper on India's now-defunct Chandrayaan-1 spacecraft. By observing sunlight bounced off the lunar surface, it found indications of chemical bonds between hydrogen and oxygen in the spectrum. And what molecule has bonds between hydrogen and oxygen? Water.
The results from the Chandrayaan-1 spacecraft have also been verified by the Deep Impact spacecraft as it passed the Moon on the way to a comet. And looking back at the data from the Cassini spacecraft as it passed the Moon on its way to Saturn, similar results were found. It looks like there really is confirmation of water existing on the Moon this time, or at least the existence of hydroxyl, which is made up of a single hydrogen atom bonded to a single oxygen atom instead of the two hydrogen atoms and single oxygen atom of water.
The water exists all over the lunar surface, but it is still only in the tiniest of amounts: the Moon is still parch dry. I doubt anyone will be taking advantage of the almost undetectable amounts of water that is spread throughout much of the lunar surface to colonize the Moon any time soon. A useful source of water would have to be a much more concentrated reservoir: hopefully, we will discover such deposits of water when LCROSS crashes near the lunar south pole next month.