First, let's take a look at what is going on inside a typical residential water meter. The most common water meter type that is installed by local municipalities is a positive displacement water meter. This type of water meter design usually incorporates a wheel, as part of the internal mechanism, with one or more magnets attached to the wheel. When water is flowing through the meter, this wheel spins, driving the register. The register is the part that sits on top of the water meter, analog or digital, that shows you how many gallons of water you have used.
This magnetic drive between the water meter and the register is used in virtually all residential water meters. So to measure water flow, you just need to monitor whether this wheel is spinning, and how fast. Since the wheel has magnets attached to it, the magnetic field from the magnets will almost certainly be detectable from the outside of the water meter enclosure. To test this, hold a compass next to the water meter. Hold it close to where the meter and the register join, this is where the magnetic field will be strongest. If the compass needle fluctuates when water is flowing, then there is a very good chance that you will be able to monitor those fluctuations.