It means someone is really bad at something and/or they don't know what they are doing. If you are standing in a boat (assuming of course that it is in the water) then it would be very easy to 'hit water' (touch the water, fall in, whatever.) Thus it is a funny way to say someone is really bad or inept at something, by making the analogy that even if they were in a place surrounded by water they still wouldn't be able to 'hit' it. In the UK we have a couple of funny (and I guess a bit more vulgar) idioms along the same lines like: He couldn't hit a cow's arse with a banjo... He couldn't organise a piss-up in a brewery...

It is an insult; it means that even though he is surrounded by water, he couldn't touch it. In other words, this phrase means that the man is stupid, or incompetent.