Rainbow forms when there is sun shining on one side with dark clouds on the other side (a dark background for the rainbow to be visible). Some water droplets in between the sunny side and the shady side will refract the sun light and cause the rainbow to appear on the dark background.
Now, does it have to rain for rainbow to form? The water droplet that causes the rainbow is certainly not part of the rain because then, rainbow won't last for long. So, the lucky water droplet causing the rainbow is in the condensed form in the cloud.
1) Does it mean that rainbow is formed only by condensed water (or ice?) and not normal liquid water?
2) There are probably millions and millions of condensed water droplets. Why do we see only one (or two) rainbows?