Drinking water is a great health tip and good for your whole body ? inside. However, your skin becomes dry from external aggressors ? cold, run, wind, pollution, even room heaters and air conditioners, so it needs something that woks from the outside in, i.e, moisturizer.
The real deal: Right after you wash your face or shower, massage in your moisturizer while skin is still damp to get the benefits of the water and the moisturizer.

I rub baby oil - in my skin after washing my face as I get dry skin and it starts flaking through out the day - and it is horrible when it gets to that stage

Teaser - I would never put baby oil on my face. I think that this is why your face is flaking. Generally, from what I know, you shouldn't put ANY kind of oil on your face.

If you want to moisturize your face, use a non-comodogenic lotion. I do this when I have a sunburn, and it works great.