Like arteries in human body, canals in Zhouzhuang fuel life in the town ... Still today water of the canals is used for domestic use and you will see people washing clothes, pots and dishes and even washing food such as rice and vegetables in the (murky) water of the canals.
I'm not sure if this is true of all the locals (most of they very old) that still live in this water village, but I believe most of them there survive off of the tourists that go visit these villages and buy their handiwork.
Always remember, there is no tissue paper in any public toilet in China, must bring some extra tissue for yourself for any emergency. See locally, act locally!!