My OTTB has one on his knee. I have been told it can be drained (and has been in the past), but it'll be back in a few months. His is a result of a slap fracture and comes with arthritis and a loss in range of motion.
This picture shows it pretty well: Starship22 on Flickr - Photo Sharing!
Even though the windpuff itself is cosmetic and doesn't bother him much, it comes with other issues, mostly a result of the arthritis. He has had it since he was about 7 and raced and won with it (though some jockeys refused to ride him because of it).
The way it was explained to me was that the membrane holding the fluids crept through the capsule (which is cracked as a result of the slap fracture) and the fluids that are necessary for lubrication are now in the wrong spot. It is not a solid thing, you can feel it has fluids in it.
We just got him fixed again after recovering from an injury, but he will need cortisone shots every so often to keep him going (once or twice a year). I was stubborn and tried everything else first, but 2 weeks ago his trainer picked him up and took him to his vet and now he is his old crazy fast self again.