Actually, it's amazing how little water a diesel on a boat needs. Keep in mind that in a closed system (like a car with a radiator), the coolent is recycled over and over again and so it gets hot, sometimes boiling hot as you might be familiar with if you've ever had a rad cap leak.
But with a boat, it's a constant supply of fresh, cool water, in the ocean, usually never more than about 16 degrees C. So it doesn't need a lot.
While the engine in my boat is admittedly a lot smaller than those of a U-boat, it just uses a trickle of water, no more than a cup or two a minute, even at top speed.
Also, diesels run cooler than gasoline engines. I can always rest my hand on the engine block of the diesel in my boat. But I wouldn't attempt that with my gasoline driven car. I once by accident grabbed the exhaust of my bike and am I ever glad I was wearing leather work gloves. I had to toss the gloves out, once I ripped them off the pipes.
The wires I was talking about are the connection between the paddlewheel and the knotmeter gauge. The paddlewheel is where the speed of the boat is measured, but there has to be a connection between that and the gauge. That connection is electrical, not mechanical like a car. The magnets in the paddlewheel just send impulses to the remote gauge. So yes, I guess you'd say that the paddlewheel (or more correctly the magnets in the wheel and the boat) create a current that is read by the gauge.