The water is a clever impedance matching trick. The contrast in density between air and human flesh is high, so the waves all reflect off the surface rather than penetrating and reflecting off the internal structures we care about.

That's why normally you're concerned with really good transducer contact (squeezing out any air) or use a gel to match impedance.

I'm a bit rusty on CT, but I'd guess the resolution is proportional to the total number of transducers in the array (e.g. larger sensing surface equals tighter resolution) since you're basically taking a Fourier transform of the incident wave.