It's just a plain text file.
$Water::topTexture Add-Ons/Water_Default/TSwater1.jpg
$Water::bottomTexture Add-Ons/Water_Default/TSwater1.jpg
$Water::loopsPerUnit 0.15
$Water::color 1.0 1.0 1.0 0.5
$Water::overlayColor 0.2 0.6 0.6 0.3
$Water::height 5
[/water]
You basically only need to change the topTexture and bottomTexture.
loopsPerUnit is the scale it is in-game, color is the color the water appears as, and overlay color is what color your screen is when you're underwater.