In the episode where you see inside of one of the waterfall holes, there are webs over it, with a small stream of water leading up to the edge; but not nearly enough to fall over the edge. Regardless, there are countless webs covering a huge stash of Chi. I would assume that Mt. Cavora stopped distributing water and instead just converted it to chi. That would make more sense, because, as you said, the water could easily pass spider web.
As others have said, I don't think that Mt. Cavora has an unlimited supply of Chi. I wouldn't be surprised if Mt. Cavora stopped providing water altogether during the crisis Chima faced. So far, they've made it out to be a supernatural, almost ethereal, "being," whatever you want to call it. I would think it knew most of what was going on, and preemptively stopped Chi distribution.
Silk is actually incredibly strong, stronger than iron at the same thickness while being lighter. Use enough of it and you probably could dam a river or cut off sunlight or whatnot.
It also has countless holes. Eventually the water would find a way through.
Edited by Reznas, Apr 12 2014 - 09:45 AM.