It probably results from cystic degeneration of the round ligament. Unlike a hydrocele of the cord, a hydrocele of the canal of Nuck is always at least partially within the inguinal canal.The accuracy of the diagnosis must be ascertained. Great care must be taken to differentiate a hydrocele from a scrotal hernia or tumor of the testicle. Ultrasound imaging can be very useful in these cases. A hernia usually can be reduced, transmits a cough impulse, and is not translucent. A hydrocele cannot be reduced into the inguinal canal and gives no impulse on coughing unless a hernia is also present. In young children a hydrocele is often associated with a complete congenital type of hernial sac. Diagnosis
A primary hydrocele is described as having the following characteristics:
Transillumination positive
Fluctuation positive
Impulse on coughing negative (positive in congenital hydrocele)
Reducibility absent
Testis cannot be palpated separately. (exception -  funicular hydrocele, encysted hydrocele)

Treatment
Most hydroceles appearing in the first year of life seldom require treatment as they resolve without treatment. Hydroceles that persist after the first year or occur later in life require treatment only in selected cases, such as patients who are symptomatic with pain or a pressure sensation, or when the scrotal skin integrity is compromised from chronic irritation; the treatment of choice is surgery and the operation is conducted via an open access technique aiming to excise the hydrocele sac. Anesthesia is required for the operation and general anesthesia is of choice in children, while spinal anesthesia is usually sufficient in adults.
The presence of fluid is demonstrated by transillumination. These hydroceles can reach a huge size, containing large amount of fluid, as these are painless and are often ignored. They are otherwise asymptomatic, other than size and weight, causing inconvenience. However the long continued presence of large hydroceles causes atrophy of testis due to compression or by obstructing blood supply. In most cases, the hydrocele, when diagnosed early during complete physical examination, are small and the testis can easily be palpated within a lax hydrocele. However Ultrasound imaging is necessary to visualize the testis if the hydrocele sac is dense to reveal the primary abnormality. But these can become large in cases when left unattended. Hydroceles are usually painless, as are testicular tumors. A common method of diagnosing a hydrocele is by attempting to shine a strong light (transillumination) through the enlarged scrotum. A hydrocele will usually pass light, while a tumor will not (except in the case of a malignancy with reactive hydrocele). Secondary hydroceles
Secondary hydroceles due to testicular diseases can be the result of cancer, trauma (such as a hernia), or orchitis (inflammation of testis), and can also occur in infants undergoing peritoneal dialysis. A hydrocele is not a cancer but it should be excluded clinically if a presence of a testicular tumor is suspected, however, there are no publications in the world literature that report a hydrocele in association with testicular cancer. Secondary hydrocele is most frequently associated with acute or chronic epididymo-orchitis.