This is a question that I tend to get asked frequently from my natural hair clients.
Actually we need both for the perfect balance. Hydration is basically replenishing water. Dehydration shows itself as dry, frizzy & brittle hair which may cause the hair to shed and break. Hydration applies in the inner most layers of our hair (the medulla and cortex) and it's all about absorbing and retaining water. While moisture pertains to the outer layer (the cuticle) and it's all about regulating the water by sealing it in. Moisture is like sealing or coating the hydration in place. Moisture comes in heavier forms such as oils and creams. Adding moisture will make the hair feel softer immediately, however the hair still need hydration underneath to remain balanced. So once the water is gone, your hair will become dry, and vulnerable to damage.
So basically the key to happy, healthy, and shiny hair is to add hydration, then seal it in with moisture.