Suigetsu (watery moon) literally refers to the image of a moon reflected in a body of water. It is a Buddhist term (although in Buddhist contexts it usually is pronounced "suigatsu").
In mainstream Buddhist scriptures the watery moon is one of the standard metaphors used for explaining the concept of the emptiness of all things. In other words, the phenomena of the world --- just like reflections of the moon seen in water --- only seem real, or seem more solid than they really are, or only seem real to people who lack the ability to perceive reality as it really is. Other metaphors used in Buddhist scriptures to convey this same notion include: foam, bubbles, smoke, hollow banyan trees, apparitions, dreams, shadows, echoes, floating clouds, flashes of lightening, sky flowers, mirages, etc. The watery moon, therefore, frequently accompanies these other objects. In this sense, the watery moon is a standard motif in Japanese literature and art.
In esoteric (tantric) Buddhist scriptures the watery moon (suigatsu) usually stands in relative relationship to the heavenly moon (tengatsu; i.e., the moon in the heavens). In this metaphor the meaning of the watery moon changes slightly. Obviously, the heavenly moon is the real moon and the watery moon is only its reflection. But that does not mean that the watery moon is unreal. The heavenly moon is unobtainable. It is not part of our world. The watery moon, therefore, is the only moon that is real to us. In other words, it is the only moon that appears as part of the world of human beings. When we see the watery moon inside the beads of sweat on our bodies, then the watery moon becomes part of us.
There is only one heavenly moon, but there are an infinite number of watery moons --- as many as their are bodies (or drops) of water.
This relationship between the watery moon and heavenly moon represents the relationship between the cosmic buddha and the divinities (i.e., local buddhas and local gods) who appear in our world. The Buddhist scriptures are preached by the cosmic buddhas, but the real teachings of Buddhism are revealed by the personal divinities who are invoked in tantric rituals.
One kind of tantric ritual for invoking the presence of these divinities is known as the moon disk contemplation (gatsurin kan). It involves meditating on a white circle (or disk) shaped like a full moon and moving that sphere of light into one's own chest. This type of meditation is extremely important in Buddhist yoga (and it is a standard form of training for improving one's martial ability).
In these tantric senses as well, the watery moon is a standard motif in Japanese literature and art.
There is another characteristic of the relationship between heavenly moon and watery moon that is of particular importance in martial arts. There is only one heavenly moon, and it is always out of reach. It is out of range. Nonetheless, as soon as the clouds clear from the sky, the heavenly moon without moving instantly appears inside the boundaries of all the infinite bodies of water. In other words, the immovable heavenly moon invades the water faster than the eye can see.
In this sense of immovability and moving into (invading into) the watery moon is a standard motif in Japanese literature, art, and martial arts. Suppose two armies are lined up on the battle field facing one another. The moment when the troops from one side are about to charge into the defensive line of the other side is called the watery-moon moment. The techniques for conducting this operation are watery-moon techniques.
The watery moon also is extremely important for swordsmanship. The sword also is a watery moon. Ordinary people cannot see it, but a trained swordsman can. Developing this ability to see the watery moon is the first step in knowing how to detect when the sword is out of reach and when it is in range. There are a wide variety of specialized sword techniques related to this principle.
The watery moon also is important metaphor for physiology. According to Buddhist yoga the body has five cakra (wheels, disks, spheres; i.e., the "gorin" of the book: Gorin no sho). The one in the lower belly is water. The one in the heart is fire. The watery moon can seen as the point where these two cakra intersect. In Chinese medicine, it is related to the triple burner (or triple heater). In terms of Western physiology, its location corresponds to the solar plexus --- but I doubt if it is proper to translate suigetsu as solar plexus. It both is and is not the same as the solar plexus.