Water activates the yeast and starts the process of developing the proteins that make up gluten into a web that will trap air and create a dough.
Basically, concerning water, if you can drink it, you can bake with it.
That said, some municipalities put an awful lot of chlorine in their water. If you’re concerned that the chlorine might interfere with the action of your leavening, the solution is simple: fill a bowl with water and leave it uncovered overnight – the chlorine will dissipate completely.
The percentage of water varies quite a bit depending on the type of bread.
Bagels: Made from a dry dough, water is anywhere from 50% to 60%
Sandwich bread: 60% to 65%
French bread (baguettes, etc): 65% to 70%
Ciabattas: 70% to 80%
Whole grain breads: Whole grains absorb a lot more water than do white flours. For whole-wheat bagels, bakers hydrate the dough at about 60%. For most other breads, they go anywhere from 70% to 85%.