Treading water is great because it's less strain on you joints. But your body is forced to move the water so you strength muscles too. The SEALs and other special operation teams do it for hours because of the low impact it is.
Water is used for the digestion and absorption of food and helps regulate body temperature. Apart from helping in digestion and absorption of food, water circulates your blood, carries nutrients and oxygen to cells, and removes toxins and other wastes. It's this body conditions that make one fit.