Germ theory wasn't widespread throughout the time period we're talking about, so they wouldn't have been able to give the reasoning that we would about why clean water is important or how alcohol acts as a disinfectant.

However, the Small beer Wikipedia page says that very large quantities of these drinks were consumed

> It was common for workers who engaged in laborious tasks to drink more than ten imperial pints (5.7 litres) of small beer a day to quench their thirst

And that it was believed to be good for people

> "For the drink of the more robust children water is preferable, and for the weaker ones, small beer"

The fact that aqua vitae means "water of life" is also evidence for this.