It is a literal "Well or Font of Power". I have not yet tested it for changes as of this patch, but I abused the hell outta it before.
The way I read the entire floating meat chunks dirtiness of it is that it is the Hag's corrupting influence. She probably built her house/lair here specifically because it does have this font of power. When she is dead the well reverts to a pure clean state since her influence/control of it is over.
Before confronting Ethel it is +10HP for each toon you have drink from it. This stacks with the +5HP lvl 2 cleric aid spell and lasts all day as well so +15HP per toon per long rest. This is massive and EVERYBODY should be drinking from the well all the time for act 1. The only time you should avoid it is right when you are ready to confront Ethel.
The moment you confront Ethel she is able to assert her power through the corrupted water and changes the HP buff to a poison and psychic debuff. I actually have not tested, but I would bet if you don't immediately follow Ethel deeper into her lair and instead end the day to rest the debuff will be gone since the water only affects you till a long rest. Similarly if you drink more water at that point with Ethel's true nature known but not confronted yet you probably get the debuff again.
Once Ethel is dead the well reverts to the initial +10HP buff and losses all mention of floaty meat chunks when you drink from it. Ethel's death cleanses her corruption from the well and it reverts to its pure state.
Edit to add: I'd go as far as to say that the illusionary Sunlit Wetlands is probably the true initial state of the area before Ethel made her lair here. Her corruption of the well tainted the entire area over time turning it into the Putrid Swamp. With her dead and the well cleansed in time it would probably revert back.
Amazing explanation, thank you!
