Channels should be used for the movement of small ships, it could also be used to drain high altitude lakes (wouldn't it be fun to flood an opponent's territory in this way, drowning his units and citizens When an engineer builds a Channel, there should be a 10% chance he drowns upon completing the project.

Ships should also be able to travel on rivers, but only with a certain contour. They can't go up but can come down (If it is very steep, then they shall suffer damage).

Dams would be used to turn rivers into lakes, or to change river flows (rather useful to remove the trade bonus in an opponent's territory), they could enen be used to reclaim land inconjunction with windmills. Dams should have a .3% chance of bursting each turn. A special spy mission could be 'destroy dam'.

Aqueducts would be used to transport water long distances. This is useful to irrigate desserts and plains in the middle of a continent, without having to irrigate the whole way first. Aqueducts should also give a food bonus to connected cities (They should not be city improvements).

Sluice-gates are like dams, but they have an 'open' and a 'shut' postision. These would be used to prevent an engineer from drowning when connecting a channel to a body of water. They would also be useful for drowning opponents units in tiles further downstream. A pair of sluice gates can also be used to bring a ship up a waterfall. Sluice gates have a .3% chance of bursting each turn. A spy can switch them from open to shut or vice-versa.

Windmills would be used to move water from low lying areas into higher areas, and would be used to reclaim land from the ocean.

Two new terrain types would be neccesary, 'Lake/Sea bottom' produces 0 food, 1 production, and 0 trade. Automatically terraforms into plains after 5 turns. 'River bed' which is a dried up river. Produces no river benefits, however /3 movement still counts. Units on a riverbed can drown if it is flooded again.
Water units on a river which gets dried up have 1 turn to get out after the dam is completed and otherwise end up beached (not disbanded!). Logically if a river or lake is dried up, then all irrigation gaining water from it will be destroyed. If an area is flooded all mines are rendered unproductive for the next 2 turns and regain their production bonuses back 10% per turn due to them being filled with water. Any special 'Animal' resourses are destroyed with flooding.
If a tile is flooded, units on it will drown (exception, marines). If a city is flooded citizens will drown, and city improvements/wonders destroyed. If a tile is flooded for 5 turns all terrain is rendered as seabed, so if the area is drained the terrain is gone.

This will make water a lot more realistic in gameplay.