I use my rear brake all the time, it helps to get the bike to lean in when I'm coming in too hot.
About the water in brake lines...
The water vapor comes in from the reservoir cap which has to have a breather; as the pads wear out, the oil level drops and air comes in to fill the space. (It it was air tight, it would vacuum lock, sucking the caliper away from the rotor. Even a fraction of a millimeter of excess play between of and rotor would give you a soft spongy feel, hence the breather is necessary.) If you look closely at the cap, you will see it has a double wall with a floating component to prevent oil spilling out. There's very little oil in a brake system, it thus also require only a tiny bit of moisture-laden air to condense. That drop of water will cause pitting in the master and slave cylinders then they can't hold pressure, and there's no rebuilding pitted sleeves. Therefore maintenance calls for replacing the fluid.
Lastly, the color change is from the heat of the brakes, not the engine. Brake fluid gets very hot in the caliper, 500+ degrees is common for spirited street use (bike or car). Dirty oil loose it's ability to absorb heat; when it overheats, bubbles form from boiling, then next time you grab a handful of footful of brake, there are bubbles of air which compresses taking up all your pedal travel. If you're lucky you'll have time to pump the brakes else you crash.
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