http://bulbapedia.bulbagarden.net/wiki/Water_1_(Egg_Group) - Water 1
http://bulbapedia.bulbagarden.net/wiki/Water_2_(Egg_Group) - Water 2
http://bulbapedia.bulbagarden.net/wiki/Water_2_(Egg_Group) - Water 3
If you see, it is kind of split up, not exactly into different segments. In Group 1, there are Poekmon that can live in Water and Land. In Group 2, there are Pokemon that can only live in Water, and in Group 3, there are Pokemon that can only live on Land. I have made these observations and am 100% sure that this is the correct answer.
Water 1
Water 1 group Pokémon tend to be mostly terrestrial Water-type Pokémon, with few fishlike Water types among them. Most are capable of both land-based and aquatic locomotion. It can be thought of as being similar to the Field Group in that it is a "catch-all" Egg Group for aquatic and semi-aquatic animals.
The majority of Pokémon within this Egg Group are capable of breeding with Pokémon of other Egg Groups
Water 2
The Water 2 Egg Group is characterized by its members' fish-like appearance. All are Water-type.
Water 3
Water 3 Egg Group is mostly characterized by its members' resemblance to aquatic invertebrates; most are Water types. Despite their lack of resemblance to invertebrates, most Fossil Pokémon belong to this group; Aerodactyl, Cranidos, Rampardos, Shieldon, and Bastiodon are the only Fossil Pokémon which instead belong to other Egg Groups.
It is a relatively small Egg Group. Most Pokémon that are capable of breeding into other Egg Groups breed into the Water 1 Group.
