Yes, water conducts heat, but it does not spread heat throughout itself as fast as other materials, hence the pumps designed to keep the hot water moving away from the CPU with the cooler water replacing it. Water absorbs heat well, it just does not spread it very quickly, like say aluminum or copper or even mineral oil, which spreads the heat it absorbs across it's entire area much faster. Ever swim in the ocean and notice that cold spot you walk in to? Ever heat a piece of aluminum and feel how quickly the entire piece gets to the same temperature almost instantly?