There used to be a cellulose plant in my town when I was a kid, in school we had paper drives for the plant to use to make insulation out of, its was a really big thing back in the day, both as a fund raiser and also a donation depending on who was doing it and for what. As the plant changed and also the cellulose changed we always got the tours of it and also its progress. It ran its course and after about twenty years, everyone who'd used it, was so sick of it, the plant went broke and closed.
As for how it absorbs moisture, simple, if you have damp, foggy weather, and a lot of it, blown in cavities don't have a vapor barrier installed, its impossible to do, hence the reason for blowing in insulation in the first place. With rainy weather and high humitidy comes moisture, the manufacturers can claim all they want with the use of chemicals and process's of manufacturing, its still a paper based product, hence cellulose the name, and any paper based product can absorb moisture, will it dry out, over time yes it will, but not before it sinks in the cavity somewhat. Over time with enough sinking and drying out, you have an air gap at the top of the walls, which is why it was such a big thing to go back around a few years later, unplug all the holes used to blow it in, and top off the wall cavitiies again. I've known a few houses that had this done four times over the period of about ten years.
If you have a water leak, like in a wall or from a bath room upstairs in a house and the water runs down into the wall cavaties, the moisture will actually over power the chemicals used to treat the cellulose inslation and it will start to mold, hence why I hate it so much, I'm alergeric to mold and will get violently sick from mold, more than a few houses have been gutted due to molding cellulose insulation in my area to both clean out the old moldy insualtion and replace with new fiberglass or spray foam to elimiinate the mold issues. Just tossing out some different experiences and views on cellulose insulation, don't mean to bash the product, there are many area's of the country it works great and for many applications, but as they say, been there done that and not interested myself anymore.