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OK, never used a water cooled unit? So presume that they come with the pump unit part?

Jazz must answer what is included in his price, but yes, to use a water cooled spindle, you need a pump and hoses and also a big bucket of some sort.

I have also noted that some need an inverter as well? Why do they need inverters?

Yes, for the motor he is talking about you definitely need an inverter. The motor many people prefer to use is a brushless three phase motor. The inverter outputs three phase 220V and you need it to generate that and for speed/on/off control.

This seems to be pushing up the cost considerably.

It is definitely pushing up cost and complexity quite considerably compared to using a simple router you planned to use, but it also increases the quality of your work.

Do i really need this for just routing out a few wooden signs?

No, not really. You have actually several options.

1. You can use an air cooled spindle motor, like I do. The "need" for the water cooled version is really exaggerated on some sites. While when you cut air it is more quiet than air cooled motors, but that benefit is immediately erased as soon as you start cutting because the cutting noise is taking over. Once you use the spindle for real cutting, the noise benefits are gone. Personally I'd never use a water cooled motor, been happily using my air cooled for a long time now. I even use it at slow speeds (4500rpm) to drill in aluminium and plastics, done that for a long time now and still no issues. Many claim that you can't use air cooled spindles because the dust will be blown all over the place. Now, I don't cut wood, except the waste board surfacing, but PCB generates a lot of fine dust and it really isn't an issue at all. Of course, regardless of what you cut, a dust shoe is highly recommended, but that is valid also for water cooled spindle.

2. You can use other type of spindles, everything between a Dremel to any router you can mount on the Z and of course, lift and lower with it. I think though that the router you bought is a bit too big, but all depends on the Z, the fixture and the Z motor. In fact, you can use a smaller DC spindle also, but it won't be that efficient. There are plenty alternatives. Many people use ordinary routers, but they are very noisy, even compared to air cooled 3-phase brushless spindles.

The best alternative is a 3-phase brushless motor, but yes, it adds to the costs and complexity, even if you'd go for an air cooled one. Never the less, there are plenty alternatives. Personally, I started cheap and simple, used a DC motor initially, and it worked but was slow and weak (400W). Now I use a 1.5kW brushless air cooled 3-phase motor and if I have to replace that, the only difference will be that I will buy one with a square house and a larger collet, but will continue with the air cooled version.