Basically 10 years of below average rainfall. Melbourne's water storages got down to about 25% at one point and I seem to recall you basically can't use the last 20%.
There were terrible bushfires in 2002, 2006 and 2009 and farmers needed a fair bit of relief from the government but life went on (with water restrictions).
The worst part of the drought was the Victorian government decided to build one of the worlds biggest desal plants (will cost the state about $30b over its lifetime), which was delayed in being finished because the drought broke.
They have not used any water from it.