The water pan is to help add humidity to the meat (keeps it moist) and regulate temperature. If you add a can of frozen apple juice to the water, it will keep the water cooler for awhile. It adds aroma to the inside of the chamber. It does not appreciably "flavor" the meat as much as burning apple wood, but it does add aroma to the chamber.
Water is important for meat tenderness and most important, temp regulation. If your bullet smoker has a water pan, use it. It's there for a reason. The other stuff is all personal taste. I like adding fruit juice to the water, but you may find just plain water to work fine for you.