A waterway is water that boats can travel along — a river, a canal, a channel between islands. The key idea is not "water" but "road": a waterway is water thought of as a route. That is why a small stream in the mountains is not usually called a waterway, even though it is water flowing; nothing can travel on it. And why a canal is always a waterway, even though people dug it. If you can move a boat along it from one place to another, it is a waterway.

You will meet it most often in a slightly official or written way of speaking — news reports, geography books, government rules. "Britain's inland waterways" means the country's rivers and canals taken together, as a network. Officials say "navigable waterway" (a waterway boats can actually use) and "inland waterway" (one inside a country, not the sea). In ordinary conversation, people just say the name: "We took a boat down the river." Nobody says "we took a boat down the waterway" about one particular river — the word likes the general, the plural, the system.

There is a second use worth knowing, because it is spreading. People who care about the environment now say "our waterways" to mean all the rivers, streams and lakes of a place, whether boats use them or not: "Farm chemicals are polluting our waterways." Strictly, that is a stretch of the word — a polluted little stream carries no boats. But it is very common now, and it sounds natural to most people, so you should not treat it as a mistake. Just notice that the older, tighter meaning is about travel and the newer, looser one is about water in the landscape.