Thermal management is an essential aspect of photovoltaic (PV) system design because of the negative effects of high temperatures on the efficiency of PV panels. The use of hygroscopic hydrogels for the evaporative cooling of PV panels is an emerging technique that has attracted attention owing to the high latent heat and recyclability of these materials. However, a comprehensive understanding of the heat and mass transport mechanisms in hygroscopic hydrogels is necessary. Factors that would ensure the long-term performance of PV panel/hydrogel (PV/HG) systems under real-world conditions are still poorly understood, and the intrinsic properties of hydrogels and the effect thereof on their cooling performance have hitherto remained unexplored. Herein, we propose a mathematical model for hydrogel-cooled PV panels to study the heat and mass transfer mechanisms of PV/HG systems in practical environments. The model is used to examine the impact of the thermal conductivity, diffusion coefficient, and thickness of the hydrogel on the performance of the PV/HG system. Unlike previously reported approaches to enhance the efficiency, in this study, the external heat transfer resistance and internal mass transfer resistance were identified as the primary controlling factors. Enhancement of the thermal conductivity of the hydrogel is shown to have a limited effect on the performance, whereas improving the water diffusion within the hydrogel significantly boosts the system efficiency. Optimally, the thickness of the hydrogel must be such that it balances the heat and mass transfer distances with the available water volume. During the summer in Guangzhou, China, a 6-mm thick layer of hydrogel lowered the temperature of a PV cell by up to 7.5 °C to increase the daily power generation by 2.1%. Analysis of the nationwide situation showed that hydrogels have substantial potential for lowering the peak PV panel temperatures (by as much as 19.3 °C) to mitigate fluctuations in the output power. Our findings offer valuable insights into the design of PV/HG systems towards improving their performance.