Having a large head circumference is not necessarily a sign of anything sinister happening. They will for example check the hc in relation to weight and length, she may be generally a large baby.
Water on the brain is also known as hydrocephalus. My daughter was diagnosed with it at about 8 weeks old, although now it is arrested (she's 11). It occurs when the fluid in the spaces of the brain known as the ventricles, is unable to drain away properly, causing a build up of fluid and pressure on the brain. This in turn causes the head to become larger than average. Because the skull is such an inflexible thing,it can only take a limited amount of pressure and fluid without causing problems for the brain, so a lot of people with hydrocephalus are shunted. This involves placing a drainage tube into the ventricles to enable the fluid to drain away into the stomach. BUT not everyone needs this, my daughter didn't. Children do have some form of developmental delay on the whole, but nothing is definite. One symptom that could possibly be a sign of hydrocephalus are the eyes. If you look at them and can see the whites of the eye above the iris (like a sunset), then this can also be a sign. It's because the pressure is causing the eyes to move out of their usual position.
A good place to look at would be Asbah , who are a very good support group and charity for people with hydrocephalus and spina bifida. They were very good when I needed to call on them, even sent someone round to talk to me.
Fwiw my daughter is very happy and thriving. You would not be able to pick her out from any other child. She did have a big head when younger and was developmentally delayed for a while but not anymore, so it isn't all bad news.
Hope this info is useful. Please try not to worry, although I understand how hard it must be. Best wishes to your friend.