When the people were building the canals they obviously had to consider that water was going to get lost.
Every time someone goes through a lock water is lost from the canal above.
So when desiging the canals they tried to have one long stretch at the highest point with NO locks. This was called the level.
Any reservoirs that were built were placed above this level, so they could feed this main head of water.
Because this level was as long as possible, and flat, it held a large amount of water.
Obviously if it was the highest point then it had to have locks at either end that went down.
As people went through these locks water was lost from the level, but because of the reservoirs that feed the level they could always top it up.
You can read more about the Birmingham canals here, and read how there are 3 "levels" in Birmngham, all fed by their own reservoirs.
http://en.wikipedia.org/wiki/Birmingham_Canal_ Navigations