Origin

Before mankind had achieved civilization the Old Ones ruled the earth, commanding blood sacrifice and feasting on mankind's ancestors. After a time the Old Ones were all banished back to their dimensions of origin by powerful practitioners of black magic. One of these entities banished from Earth was the Water Elemental. 

Major Story Arcs

The Master of the Mystic Arts, Doctor Strange, gave his magical artifacts to  Agamotto  (the scrolls and talismans weren't actually destroyed by Strange as they appeared to be)  in order to save his friends from  Urthona, a powerful alien sorcerer. With the various magical barriers keeping the evil gods out no longer functioning, the Old Ones were free to terrorize Earth once more along with the Water Elemental.
 
The Water Elemental attempted to kill Doctor Strange by possessing the body of a man named Martin Fein, who accidentally got locked outside of his vehicle. After obtaining a host body, the Water Elemental found his way to Strange's Sanctum Sanctorum. He found Doctor Strange outside of his mansion and confronted him. As Strange tried to overpower the Water Elemental through physical prowess the demon dissolved into water and reappeared right behind him. Doctor Strange's pupil Rintrah came to help the magician, but the Water Elemental was overpowering Strange and tried to drown him into the pool of water below them. Seeing no other alternative, Strange used a blast of mystical energy to destroy the host body of the Water Elemental. The Water Elemental was not seen after that but it is unknown whether it was killed for good. 

Powers and Abilities

The Water Elemental is from a foreign dimension and cannot be harmed by non-magical attacks. It was capable of possessing the body of unwilling hosts and controlling the element of water, as shown when it started to make it rain heavily before attacking Strange.