The purpose of this paper is to investigate the dynamics of the fluorescence mechanism of boradiazaindacene (BODIPY) dye molecules, which are covalently bound to a polyethylene glycol based hydrogel structure with different concentrations, using a picosecond time-resolved spectroscopic technique. Since the hydrogel structure is capable of absorbing a large amount of water, without dissolving and without losing its shape, upon swelling, the distance between the BODIPY azide dyes is controllably changed; it is observed that the intensity weighted fluorescence lifetime for the highly concentrated donor dye molecules embedded in the hydrogel cluster network changes from 2.03 to 7.14 ns. Calculations based on our experimental results suggest that the fluorescence dynamics of the BODIPY azide dye molecules confined within the hydrogel network obeys the Forster resonance energy transfer (FRET) rather than self (or contact) quenching. If the hydrogel is dry, in which the distance between donors and acceptors is minimum, the energy transfer efficiency is found to be about 72%, and the distance between the two dye molecules is calculated to be 4.59 nm. Such a close placement causes a significant reduction in the fluorescence intensity due to a strong dipole-dipole interaction of the dye molecules. As the separation increases upon hydrogel swelling, the FRET efficiency reduces to 2%, which corresponds to a separation of 10 nm between two BODIPY dyes and hence a considerable increase in the level of fluorescence intensity. For the dilute hydrogel samples, the distance between the dye molecules is larger than the critical Forster distance. Therefore, the energy transfer efficiency for this type of dilute samples is found to be much lower.