1 Place a solid block where you want your water to be.
2 Highlight the whole block, Shift+A and select a water texture.
3 Highlight the whole block and Crtl+T and select Func_Water.
4 Make these changes to Func_Water:

Render Mode: Additive
FX Amount: 255
Wave Height: 1 is a low wave (recomended for pools) and 3 is a fairly high wave (recommended for oceans).

Your block should now be fully functional water. Experiment with different textures and water settings such as water types (Lava, slime etc... All can be found under the func_water t.

TIP: When adding light close to water, match the light colour to the water colour to add realism (As shown in the in-game screenshots.

Good Luck.