The verb "לצפות" if followed by the preposition "ב". It still means in, so I guess we say to watch in something in Hebrew. Unfortunately there's no explanation, it's just one of those things that you have to remember
I suppose that you could say ‘הילדים צופים במים במים’ for ‘The children watch the water in the water’. I don't know if that makes sense in Hebrew, however; it's not very comprehensible in English either!
in hebrew it's "watch at" rather then "watch in".
what do you mean in "if they were actually at the water?" one can be (for an example) at the sea, yet look at it, unless you mean floating that it is צף על המים
singular masculin צף [tzaf], plural masculin צפים [tza-fim], singular feminine צפה [tza-fa], plural feminine צפות [tza-fot]