Water is up inside the "accordian" bellows that attaches between the hull and carbon ring, the carbon ring is stationary(does not rotate) and makes a dynamic seal with the flat surface of the floating ring. The water inside the bellows provides a thin film that actually lubricates and cools the carbon ring as the floating ring rotates.
Thus, the drive shaft is wetted over the entire area aft of the floating ring and water is kept out of the boat by the contact of the carbon ring against the floating ring. It's a common carbon seal design used in many dynamic sealing applications, quite similar to the carbon shaft seals used in industrial and automotive refrigerant compressors.
Just for clarification, the "floating ring" from my post is called the "seal carrier ring" in the official seadoo language.
Also, make sure you installed the bumper plugs in both ends of the drive shaft, those are important to keep the splines centered and often overlooked!
With high quality products and considerate service, we will work together with you to enhance your business and improve the efficiency. Please don't hesitate to contact us to get more details of Floating Seal Supplier.