The basket is not really storing water. As I see it the basket gives a convenient way of adding water and compostables directly into the root zone of the plants grown in the keyhole garden. Adding the water in this way will help to reduce losses to evaporation. The water will also aid the breakdown of the other ingredients in the basket.

The compost is made "on-site" so there is no need to remove it from the basket, any nutrients that leach out of the compost are immediately in the growing plants root zones. Indeed the roots will grow into the compost itself.

As the vegetable scraps, etc, added to the basket decompose they add nutrients to the garden. The basket itself would eventually decompose and would need to be rebuilt, again using local branches and sticks.

The keyhole garden takes the best ideas from lasagna/sheet mulch, rain gardens, composting, no-till, and combines them in a neat little package.

Cheers,
Kyle

Here is a link that might be useful: Keyhole Gardens on YouTube