For BT, intervening means not just "in between" but specifically "in the way". What makes a hex intervening is strictly defined on p. 13 of AGoAC.
The rules passage you're quoting is saying that you can't see a submerged unit when using the intro box rules, because at that point the water is intervening (is in the way). However, water just lying at your feet along the LOS has no effect on LOS. And if both of you are in level 1 water, you can still see and shoot at each other as well (each would have partial cover).
(More advanced rulesets like TW and the BMM allow submerged units to see each other and then provide underwater combat rules, but the intro box doesn't in the name of simplicity; hence the "for the purposes of these rules" part.)
