Balancing the moisture level in your bin is a key factor in having a successful worm bin.
If your worm farm doesn't have enough water, decomposition will not occur and you won't see the productivity from your worm bin that you were hoping for.
If your bin has too much water, it can inhibit oxygen in the system, which can cause your bin - or portions of it - to go anaerobic. Most every problem related to worm composting comes from anaerobic conditions.
How much is appropriate?
Aim for somewhere between 60-80% moisture throughout the entirety of your bin. If you want to get a hands-on idea of what a good moisture level is - go saturate a sponge in water, give it one good strong squeeze and then feel that moisture level (with a dry hand). That is about how your worm bin should feel.
Similarly, the "squeeze test" is often used to measure moisture levels in a worm bin. If you take a handful of the contents of your worm bin (try not to have any worms in it!) and squeeze it - you want to see around 1-3 drops of water come out.
More than 3 drops and you probably have too much water, if no water comes out it may be on the dry side.
Of course the drop-test depends on how well your bedding holds water and how strong your hands are, so this is just a general guideline.
Other signs that your bin is too wet is if it is leaking water in the bottom/water is pooling in the bottom, or you're smelling bad smells from the anaerobic waterlogged material.
How to Water
It is always better to under-water than to over water. It is very easy to add more water to fix a dry bin, but much harder to dry out and fix a wet bin.
As you feed the worms you will often be adding water at the same time. Fruit waste, such as banana peels or watermelon rinds have a lot of water in them that they will release as they decompose. This “method” of watering will happen naturally.
With that being said, you need to be aware of how much moisture your food holds when you add it, and be careful that it doesn’t add too much water. Especially if you are adding a lot of this food, you should pay extra attention to too much water being added, which will usually collect in the bottom of the bin.
But, if you are not adding water rich foods or you just need to manually add water, I recommend misting your bin to add water (like a spray bottle) instead of pouring water on it (think of a watering can). This is because the water from a watering can will quickly make its way to the bottom of your bin and collect there before it has the chance to be absorbed by the material above.
There are really convenient pressure spray bottles that will save your hand many cramps that you can find online or at your gardening store. I definitely recommend them if you find that you need to manually water your bin often.
How to Dry your Worm Bin
Drying the bin is not quite as complicated, its as simple as mixing dry bedding material throughout the bin where it needs to be drier. The dry bedding will absorb the excess moisture and help get your bin to the correct levels.
Increasing airflow will also help, but adding dry bedding is much quicker and easier.
Water Leaking from the Bottom of the Bin
Contrary to misinformation online, not only should your worm bin not be leaking water from the bottom of the bin, that liquid is not recommended for use on plants.
From the Manufacturer's Instructions on the Worm Factory:
The liquid runoff that settles in or below the vermicompost or worm castings is known as leachate. Leachate can contain phytotoxins (toxins that can harm plants and humans)... Some leachate can contain harmful pathogens because it has not been processed through the worms intestinal tract. It should not be used on edible garden plants.
If water is leaking from the bottom it is too wet and you need to mix dry bedding into the bin to take care of it.