The Hydraxian Waterlords are elementals that have made their home on the islands east of Azshara. They are sworn enemies of the armies of Ragnaros. Historically servants of the Old Gods, the four Elemental Lords served the gods with undying loyalty. The minions of Neptulon the Tidehunter were numerous and mindless. It is not yet known how Duke Hydraxis broke free of his lord's control (if indeed he has), or what his ultimate goals are, but the Water elementals are the only elementals that do not attack the mortal races with abandonment.
Located on a remote island in the far east of Azshara, Duke Hydraxis offered some quests, but they were all removed in Cataclysm. The first two required killing various elementals in Eastern Plaguelands and Silithus. Increased faction with the Waterlords opened up additional quests leading into the Molten Core. Any items obtained from the Hydraxian Waterlords, were obtained from its various quests.
Prior to patch 3.0.8, Duke Hydraxis offered the questline to obtain Aqual Quintessence used to douse the runes found near most bosses in Molten Core. This was required to summon Majordomo Executus, the penultimate boss, and, after his defeat, to summon Ragnaros himself. Since there were seven runes, any raid needed at least seven players to bring a Quintessence if they wished to finish the instance. However, after the patch, Executus automatically spawns once the other bosses have been defeated.
All of the bosses in MC reward reputation until Exalted. However, it takes only a few MC runs to get to Honored. So if you are in a MC capable guild don't bother with Silithus (you do however have to do all the quests to get your ring).
Even though you can check "at war" with this faction, it is impossible to lose reputation with the Hydraxian Waterlords. Killing a Hydraxian Honor Guard will not result in any loss in reputation (nor any loot). The lowest possible reputation with the Hydraxian Waterlords is thus 0/3000 (Neutral).
As of Patch 3.0.8 returns are no longer diminished based on level.
Quests
The quests Duke Hydraxis provides are the following. There is no rep gain from turning in these quests (at least the ones listed at Neutral).
Currently there are no known rewards for 999/1000 Exalted. It would take 3-4 additional runs once reaching exalted to reach 999/1000 Exalted, as only Ragnaros and Golemagg the Incinerator will continue to give reputation points.