Power transfers through the gear assemblies above the pump/waterwheel setup. Each is controlled by a lever, so I can isolate, say, 3 units only. This is handy for kickstarting it back into operation if it goes offline (like if it overloads), or just for keeping it as lightweight as possible.
I just thought of a possible improvement to that design - reorganize the mechanical linkage on Z+1 so that the generators are connected in parallel instead of in series (see below), then place a pressure plate on each pump's output tile, set it to be triggered by water of depth 2-7, then link it to the pre-toggled gear assembly above the pump. The result will be that each generator will only transmit power to the rest of the system as long as it's actually running - if the water level on the output tile drops below 2/7 for more than 100 steps (which generally shouldn't happen as long as it's running), the pressure plate will release and disconnect the generator so its water wheels will stop dragging down the rest of the system.
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That's a smart improvement! I figured there were more clever ways to build this, but it was my first time through. It might make it tricky to turn it back on, though. I usually only have to fire up one, and then I bootstrap on the rest in 3-4 unit segments. If the pumps automatically disconnect themselves from the grid when not running, they won't be able to be started by nearby pumps. I'm sure there's a solution to that problem... I would definitely be interested in figuring out ways to have them auto-start, as well. Using a dwarf to manually start them is actually pretty quick and easy, but I'm a perfectionist.
As the wiki notes, you can also have all the gears and linkages on the Z level, but I find it to be a cleaner design if I separate out the components.
No, because then you will end up with a bunch of 7/7 water that wont move your wheels at all, as the pumps will just be teleporting the water to the outflow.
7/7 water can have flow for purposes of turning water wheels, I've had many water plants with solid 7/7 under them turning happily. It won't push objects, but it will turn wheels. I don't know exactly what is used to determine if water is flowing however,.
Maybe those were tiles with intrinsic flow (e.g. connected to a brook)? I didn't seem to get power on one of the numerous times I accidentally flooded the system - it sits beneath a very, very deep lake - but I had other concerns at the time. I know for sure that when a level was filled with 7/7 water, it did not have flow.