Q: How can I tell if my iPod touch is water damaged?

Well, was it accidentally dropped into water or got wet in the rain? If it hasn't been near water, there should be no water damage. If it refuses to charge or turn on, I'd suggest a visit to your nearest Genius Bar.

Without cracking it open you really can't. This is a long shot, you could try drying it out. Do not attempt to charge or turn on, leave it off. Place it in a sealed bag of uncooked rice for about a week. change the rice every couple of days. After you dry it attempt to turn it on, you my need to charge it first, about 30 minutes. If it works great, if not you may need to reset or attempt to restore. And it may never work again, but for a couple of dollars of rice its worth trying. If you do get it to work the first thing you want to do is make a full backup to your computer. The thing with water damage is you just don't know how long it will continue to work.  If you go to Apple be prepared to spend some money, water damage is not covered with the standard warranty. Good luck, hope this helps. Cheers.

The liquid indicator will giv yo some indication

iPhone and iPod: Liquid damage is not covered by warranty - Apple Support

Glad to help.