Poor health leads to poor productivity.
The sickness caused by dirty water saps people's energy to do much of anything. If you've ever had food poisoning, you know how horrible it can be. Students who suffer from waterborne illness can't stay in class. They miss out on the chance to learn and the cycle of poverty continues. That and when one person is sick, someone else has to take care of them, which means that the second person can't work either. If the sick person needs medicine, that money can't be used for other things, like food or school supplies.
Rural dwellers and the urban poor feel the lack of safe water and proper sanitation in the developing world the most. With few medical resources at their disposal, the poor are particularly vulnerable to chronic illnesses that hinder their productivity, making the escape from poverty even more difficult.