Actually, Dalwinnie uses a very pure water that cones from a spring with a hard to pronounce Gaelic name. The spring is fed by snowmelt. The ground filters the snowmelt, and it is very clean as it reemerges at the spring.
Melted snow is used by many people as a non-chemical water supply that is free instead of distilled water. It is not food grade. For knifework, the dust and such in the bottom of the pot is of no concern. It could be filtered if you wanted to, but there is no need.
Now, about the coating.
Crystaline oxide conversion is when you take the surface of a metal and react it with an oxidized to create a metal oxide. We all know it by its common name - Black Oxide Coating.
In hot bluing, the boiling caustic chemicals (basically lye) make a hot high Ph solution. These solutions are high in hydroxides and thus strong oxidizers. The steel surface is oxidized to a dark black oxide. The depth depends on the concentration of the oxidizer and time in the bath. The longer the deeper up to a point where it pretty much stops. As Karl noted, removing all the salts and water once done is critical. Boiling clean in a large quantity of water and complete drying is important. I used to give the blade or barrel a 1 hour bake in a 300°F oven to assure there was no water deep within a bad weld or micro-crack. I would soak the item in WD-40 (pretty cheap by the gallon) immediately out of the oven.