To be filed under “Every day is a School Day!”.
This was news to me, as I didn’t know such an indicator existed! A quick Google Seach shows that most ‘phones now feature this indicator, which turns from White to Red if the ‘phone suffers “Water Damage”.
As seen in the image below, the battery on the left has a White indicator – and so is ok. The battery on the right has a Red indicator, which shows water damage.
I’ve certainly not let my HD2 get wet, but as the spare battery that is affected lives in my laptop bag – I guess it could easily have gotten damp at some point.