I have always considered the use of the word "squat" to be a reference to the natural defecation posture and , indirectly, the products thereof.

The notion of seaman (or anybody else) calculating the compression of water under the hull is odd, especially as water is essentially incompressible - a fundamental principle of hydraulics.

Density, as distinct from compressibility, is another matter. Sea water reaches its maximum density at about 4 degrees C. Density variations in sea water, due to differences in temperature and salinity, are a major factor in deep-ocean circulation patterns.