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This paper conducts a comprehensive study of the Lagrangian-based hydrodynamic model with application to highway state estimation. Our analysis is motivated by the practical problems of freeway traffic monitoring and estimation using multi-source data measured from mobile devices and fixed sensors. We conduct rigorous mathematical analysis on the Hamilton-Jacobi representation of the Lighthill-Whitham-Richards model in the transformed coordinates, and derive explicit and closed-form solutions with piecewise affine initial, boundary, and internal conditions, based on the variational principle. A numerical study of the Mobile Century field experiment demonstrates some unique features and the effectiveness in traffic estimation of the Lagrangian-based model