Healthy skin contains about 10% water. The water influences elasticity, tensile strength, barrier characteristics, and appearance of your skin. If you have less than 10% water in your skin, you're too dry and need to get some water in there somehow. You can live in a more humid climate (apparently 60% is ideal, so come visit me in B.C. some time!), drink more water, prevent further damage, or draw or apply water to your skin.
Our stratum corneum (the outermost layer of the skin) contains a natural moisturizing factor (NMF) of its own. It is a complex mixture of water soluble compounds, such as amino acids, organic acids, urea, and inorganic ions. This NMF makes up about 10% of the stratum corneum. And the major components of this NMF is sodium lactate, urea, and pyrrolidone carboxylic acid (or sodium PCA). When we absorb water from the atmosphere (or lotions!), this water dissolves these molecules and they act as humectants in our skin drawing water from the atmosphere. But when we live in arid climates, or we have done some kind of damage to our skin, the NMF is compromised and isn't keeping us moisturized. This is where we use our lotions or bath & body products with humectants to help protect and repair the damage.
But water alone isn't going to help it. It evaporates too quickly to really make a huge difference. And this is where our oils and other ingredients come in.
We need three things to moisturize our stratum corneum...
1. Occlusion: We need to reduce the water loss (trans epidermal water loss or TEWL) from our skin. So we use oils, film formers, and other ingredients to trap the water in or on our skin.
2. Humectancy: Humectants will help retain water in the skin and will draw water from the atmosphere.
3. Emolliency: We add moisturizing ingredients so we aren't bothered by the rough, dry skin, and to keep it from being further damaged.
So how do our products work with these three goals in mind?
Our mild cleansers - facial products, body washes, and soaps - work to cleanse without causing damage. If we add some film formers (proteins, cationic quats), emollients, or humectants to the mix, then we can moisturize and, possibly, occlude as well.
For something like a bath bomb, adding oils to the mixture will offer us the emolliency and occlusion characteristics.
In a lotion, although we go on and on about the cool oils and butters we can use, the real purpose of these ingredients is to form an occlusive barrier and add emolliency. We want the butters and oils to trap the water in so it can do its job of hydrating our skin. (This is not to say that the oils and butters don't have benefits of their own, but these are just the basics!)
This isn't to say we shouldn't consider other factors - pretty fragrances, nice tinglies from mint essential oils, the silky smoothness of a good body butter, the viscosity of our surfactant mixtures, and so on - but if we keep these three goals in mind, it's easier to choose our ingredients and make awesome products!