I have a scale like that, though I don't really look at the water. What you want is high in muscle, low in fat and (reasonably) low in water. Your scale is a great tool to measure progress, but make sure you are aware how the numbers work.
For example: Weight is obviously weight. Fat is a percentage of a current weight. So, if you overnight drop a lot of weight from losing water, then your fat percentage will go up. This doesn't mean that you gained fat. It just means that the percentage, relative to your new lower weight, is higher.
On the other hand, if you weight is stabile for some days, nothing really happening, and you see your fat percentage go down, then you may not be losing actual weight, but you are losing fat still, and can probably expect a larger drop in weight in a shorter while.
This is great to help you stay sane through those times where nothing seems to be happening.
"Losing weight is never about eating as little as possible"
"Eating enough, moving more, not eating stupid s**t = losing weight."
"Do. Or do not. There is no trying."
- Master Yoda.
I started my weight loss journey on October 4th, 2010 - and this is what I have accomplished so far: