Water cooling pros
The act of switching from air to liquid cooling represents a personal milestone in one's computer-building life. You, young PC Padawan, are now a desktop Jedi.
Let's start with the pleasant bits. One of the key benefits of a strong liquid cooling setup is that it allows you to cool specific system components to a greater degree than if were you to use fans--not the most applicable setup for someone running a typical stock-clock processor, but one that's definitely of interest to anyone looking to overclock their chips a bit (or a ton).
Even if you don't tax your rig enough to need a bigger cooling boost, a cheap self-contained water cooling loop--more on those later--can help lower your PC's sound output. Water cooling is much quieter than stuffing your case full of fans.
There's also the issue of space. A huge heat-sink/fan combination might perform well enough, but the best CPU coolers eat up a ton of real estate inside your case. Liquid cooling requires much less space, and it looks a lot niftier to boot. You can't discount the cool factor of a case full of colorful, liquid-filled tubes!
Water cooling cons
One big downside of water cooling is its comparatively high cost, especially if you're looking to build a custom setup. While most traditional upper-end CPU coolers cost somewhere between $50 and $100, building a liquid-cooling setup can cost far more. For example, EKWaterBlocks' top-tier H3O 360 HFX water cooling kit costs a whopping $360. (The price is converted from euros, so the 360 in the name may be coincidental.)
Quality matters in a liquid-cooling setup: You don't want to buy cheap parts to save a few bucks and end up dousing your pricey PC components in brightly hued coolant.
The homework involved is another drawback. Generating the parts list is going to take a little planning if you're not buying a prepackaged kit. You'll have to pick up a water block for your CPU that fits its socket, fittings that match your block and tubing size, the tubing itself, a pump, a reservoir, a radiator, a fan (or fans) for the radiator, and the coolant itself. And that's just a typical setup for the most bare-bones configuration you can build. If you want to power separate loops for your video card, motherboard, RAM, or hard drives, you'll have to do even more planning and purchasing.
You'll also have to make sure you have room for your setup. Radiators typically require open fan slots on your case. Reservoirs require space in your case as well, and you'll have to plan out your loop's layout so that you can actually get it up and running ("priming" the pump, so to speak) when you fill it with coolant. In other words, your water-cooling loop does you no good if you don't have a good way to get the fluid running around!
Then there's the installation itself. Simply put, your first adventures in water-cooling land could very well be fraught with peril. Installing loops isn't exactly newbie-friendly, and the process might be more involved than you're comfortable with, even if you've installed a typical fan-based aftermarket CPU cooler or two.
Which reminds me: Connecting your tubing and fittings in a secure and safe fashion is going to be your number-one issue when building your first water-cooling setup. You will spring a leak in some fashion. You'll want to construct and test your liquid-cooling system outside of your PC to ensure its fortitude before installing it around your expensive electronics. Component manufacturers aren't likely to replace flooded electronics, and the manufacturers of your water cooling parts certainly aren't going to foot the bill.
Self-contained liquid coolers
If all this talk of water cooling's complexity has left your head spinning a bit, fear not: Another solution is available.