Hmm, I probably wouldn't use either of these terms. Neither "water town" nor "watery town" are set phrases regularly used in English to describe the type of towns you describe.
I know that Venice, maybe the most famous city with small bodies of water running through it, is sometimes called the "City of Canals." Maybe if "canal" is accurate to describe the small rivers in this town above, calling it a "canal town" or "town built on canals" would get the meaning across well to English speakers?
Curious what others thing about this -- sorry I cannot give a more definitive answer!
"Watertown" is the name of several U.S. cities. I don't see that any of them have canals.
I would have no idea what you meant with "water town" without your photo.
Wikipedia refers to Bruges, Belgium as "canal-based."
"Along with a few other canal-based northern cities, such as Amsterdam, it is sometimes referred to as the Venice of the North. Bruges has a significant economic importance, thanks to its port, and was once one of the world's chief commercial cities. Bruges is well known as the seat of the College of Europe, a university institute for European studies."