Yes, there is a limited amount of water on (and in, and above) Earth. There's a limited amount of everything on Earth. Most things on Earth stay on Earth due to the pull of gravity, gaseous water included* (Mars doesn't have enough gravity to keep its water though).
A water molecule is made up of two hydrogen atoms and one oxygen atom, giving it the formula H2O. These form a relatively tight bond (compared with some molecules) so that they don't easily break apart, but a small proportion of them do break apart under the right conditions, such as when photosynthesis turns the combination of water and carbon dioxide into oxygen and sugar. Often water is formed again later, such as when the sugar is consumed (eaten) by animals or microbes.
Where Earth's Water is
The majority of the easily accessible water on Earth is in our oceans. Only a small proportion (3.5%) is fresh water in lakes, rivers, swamps, aquifers, and ice, and most of that is largely inaccessible. There's some excellent info here on that (see the table). Apparently only 0.04% of the fresh water is in the atmosphere (To be clear, that's one twenty-fifth of a percent of the fresh water, or one thousandth of a percent of the total water).
Why are there droughts then?
The system as a whole is in a kind of complicated balance, where warm dry air causes increased evaporation of water from oceans into the atmosphere, and as moist air cools it becomes clouds then rain. In places where there's a lack of rain, it's not caused by a shortage of water on Earth. Rather, it's caused by localised weather which is caused by shapes of land masses and their location on Earth.
What's probably most interesting is local weather. Because temperature has significant effects on weather, you're probably better to focus on climate patterns and effects of (anthropogenic) climate change rather on how much water there is in total.
*Lighter gases, Helium in particular, but water too, do tend to be lost into outer space from the outside of Earth's atmosphere. Earth has lost some already, but it's a very slow process and nothing to worry about too much for quite some time... we might need to worry about the deterioration of our sun before we lose too much water. http://www.thenakedscientists.com/HTML/questions/question/2321/