Water can makes its way into boat fuel in a number of ways. There may water in the fuel from the fuelling station itself, or in the outboard's fuel lines. If you are running an outboard from a portable tank, a loose cap or leaky hose could let water into the fuel. Fuel in a gas tank is also vulnerable to water that condenses from the air inside it.
Gasoline engines can generally cope with some water in the fuel. A common result is an engine stutter, as drops of water interrupt the engine's combustion. If your engine is stuttering, but still running, you can generally keep it running and burn through the contaminated gasoline.
Water in the gas may also cause the engine to misfire. Minor misfires can feel like a vibration in the engine, while major ones can cause a loud "bang" and result in a puff of smoke coming out of the engine's exhaust. In a misfire, not all the fuel is fully burnt, leading to the smoke in the exhaust.
Enough water in the gas may cause the engine to stall as it interrupts the combustion process. In this case you may have some trouble getting the engine to start again, since the water will remain in the combustion chamber.
Blown Diesel Injectors
If you have a diesel outboard motor, water is a much bigger problem than it would be for a gasoline model. Although diesel engines do have water separators in the fuel line that are designed to remove water from the fuel, these can be overwhelmed by large amounts of water. In such a case, the water can flash into steam when it gets to the cylinder and destroy an injector by blowing its tip off. This would result in a loud noise, strong vibration, and a stopped engine.