Water separators do just that, separate the water from the air. If you don't drain the water, it can get full and contaminate your air supply. Some makes have a service life as well, and need to be replaced.
I use a separator at the compressor, one at the spray booth where I have my regulator mounted, and a third inline type about 3' from the airbrush.
Make sure your separator isn't full of water, and consider replacing it, as well as getting an inline style as redundant insurance.