Determines if there is intra-articular fluid in the knee
First: look at the patient. Gross assymetries, such as the obliteration of the normal indentations, are the first clue.
Next: attempt to create a fluid wave. Do this by having the patient lie supine with the leg extended, and then placing one hand over the supra-patellar pouch and the other one distal to the patella. Press down with the upper hand. If there is fluid present, you will feel it against your lower hand (diffuse tissue swelling will NOT create such a wave).
Last: try to "ballotte" the patella--ie, gently push down on the patella. if you can depress it, it means that the patella was "floating" in fluid before you pressed.
Fluid in the knee is typically bad.
Bloody fluid (with normal xrays) suggests a ligament tear, articular injury, meniscal tear or patellar subluxation/dislocation.
Inflammatory fluid could be DJD, Inflammatory arthropathies, gout or infection