Depending upon where you live nature sometimes takes care of this situation and grass should be watered only when it begins wilt, pale in color or have no resiliency. This is during a "normal" weather. On days of extreme heat more water is lost through evaporation than plants can handle and become wilted from the stress of the heat. Since the blades can absorb some water it can be beneficial to mist the grass (for a short period) through the hottest time and allow it to regain its integrity until night time and dew revive the grass.

Remember that wind plays an important part in the drying out of the lawn and hot, windy climates will evaporate just as quickly. Without water plants either die or go into dormancy until the next season or when enough water is supplied and this process will weakens the grass and retards growth.

NON-IRRIGATED Turf Maintenance (Southern Turfgrass)
http://aggie-horticulture.tamu.edu/plantanswers/turf/irri.htm

In general for normal growth functions grasses need .2  (2/10 of an inch) of water per day for normal growth.  Over 90% of the water grasses uses returns to the atmosphere through transpiration of the leaf surface cells.  A general rule of thumb often suggested by experts is 1" per week.  In sandy soils it is best to split this into 2 applications of 1/2 inch each.  Sandy soils require water more often than do soils of a loam or clay soil as they hold (retain) less.  Also soils with salt (high levels) restrict the availability of water to grass plants.  Heavier soils must also be watered slower so that the water infiltrates the soil.  Also... grasses growing near (or under) trees and by shrubbery require more water as the trees/shrubs compete. 

Species type also effects water requirements.  Cool season grasses are more susceptible to moisture stress than are the warm season grasses. The peak use rate for warm season grasses is in the range of .3 to .35 inches a day.  While warm season grasses during peak use will only need about .25 inches per day.  

DROUGHT TOLERANCE OF GRASSES - Keep in mind this does not mean the grass doesn't need water or do better with less water,  just that it can survive with less water in fair to good condition.

• High Drought tolerance: (Perform best with least water):
  Bermudagrass, Buffalograss, Zoysiagrass, Bahiagrass, Wheatgrasses, Fescues; especially Red Fescue.
• Medium Drought tolerance: 
  Kentucky Bluegrass, Canada Bluegrass, Redtop, Colonial Bents, Ryegrasses, St.Augustine and Centipede grass. 
• Low Drought tolerance:
  Creeping Bents, Rough & Annual Bluegrass, Carpetgrass -  These grasses like lots of water.

You should adjust both your irrigation practice and other management practices such as proper mowing, thatch control and fertilization so as to encourage deeper root growth of your grass.  Grasses with deep root systems are less adversely affected by drought conditions.  Grasses that have not been properly managed will often experience more problems with disease and insects during and after drought conditions.  

Design any irrigation system you install based on the net evaporation rate that your particular location has.  This data can be obtained from the local weather service. Your system should be designed to replace that evaporation rate.

WHEN TO WATER?

• First this is a factor of your particular soil type.  Learn what soil you have so you can adjust your watering rate appropriately.
• Best time to water is when your grass shows signs of needing it!  This is when it starts to wilt, most noticeable by the fact the grasses leaves curl and/or your foot prints remain where you walked.  This means the grass is slightly stressed and is a good time to start watering. This encourages the deeper rooting that a healthy lawn has.  Remember to water down to the 6-8 inch level based on your soil type.
• Be sure and don't apply water faster than your soil can "drink" it.  All soils absorb water at different rates.  Know what your soils rate is before turning on the sprinkler.

QUANTITY OF WATER APPLIED DEPENDS ON SEVERAL FACTORS:

• Current amount of water in the soil (saturation)
• Your soils water retention capability
• Percolation and filtration rates (infiltration) for your particular soil vs water applied.

You should normally water to wet a minimum of 6-8 inches soil depth.  This is where the majority of your lawn grasses roots reside.  Wetting at least this depth encourages deeper root growth and a better turf grass.  You should try and make the moisture meet.  This means applying enough water so that the subsurface moisture meets the surface applied moisture.  A soil probe can be used to determine when this happens.

BUT DON'T OVER WATER (Yep, its a difficult balance act you play here.  Much like getting your kids to drink the right amounts of water and milk.)

Too much water is also bad, resulting in reduced root and shoot growth along with an overall reduction in the quality of your turfgrass.  Too frequent irrigation is also NOT desirable, having similar effects to the grass plant as excessive watering. 

Water logged soils have a reduced amount of oxygen present in the soil.  This results in damaging the growth of the turfgrass root system and the overall quality of the grass.  Different grasses react differently to the water saturation.  Red Fescue does not do very well in moist soils, while Bentgrasses and rough Bluegrasses like high soil moisture levels.

Read about water FREQUENCY for more about infiltration and application rates.

New lawns are an EXCEPTION to the rule of frequency and amount of water applied.  Often daily, semi daily or every other day is required for newly seeded or sodded areas depending on the soil.  Morning and afternoon water applications may be required in many locations for seeded grasses during the first 2-8 weeks after planting (depending on species planted.)

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