About this passageWater is the book's recurring figure for the way it recommends. The argument is not that water is gentle but that it is effective: it reaches everything, it takes the low ground nobody competes for, and it wins by not contending. Legge's parentheses are his own, marking words supplied to make the compressed Chinese read as English.
The highest excellence is like (that of) water. The excellence of water appears in its benefiting all things, and in its occupying, without striving (to the contrary), the low place which all men dislike. Hence (its way) is near to (that of) the Tao.
The excellence of a residence is in (the suitability of) the place; that of the mind is in abysmal stillness; that of associations is in their being with the virtuous; that of government is in its securing good order; that of (the conduct of) affairs is in its ability; and that of (the initiation of) any movement is in its timeliness.
And when (one with the highest excellence) does not wrangle (about his low position), no one finds fault with him.
In plainer words
The best way to be is like water. It does good to everything, and it settles in the low places people avoid, without fighting anyone for a better spot. That is close to the way things actually work. For a home, what matters is the ground it stands on; for a mind, stillness that goes a long way down; for company, people who are good; for anything you do, doing it well; for any move you make, making it at the right moment. And if you do not argue about where you have ended up, nobody finds fault with you.
A restatement in modern English, written for this collection. The passage above is the text; this is one way of putting it.