means The line on a ship's hull where the surface of the water sits, marking the boundary between the part that floats above and the part submerged below.

from A plain compound of "water" and "line," both Old English at heart — "water" (wæter) and "line" (line, from Latin linea, a flaxen thread or cord). Sailors needed a word for that crucial mark, and English did what it loves best: bolted two ordinary words together into one useful one. It later floated outward into figurative speech, where keeping something "above the waterline" means keeping it safely afloat.