If it is indeed a water heater, and that does seem to make sense, then it looks to me like the fuel would be placed into the container and the top would be placed over it. The short tube would be in a raised position sitting on top of the fuel at the beginning of the burn, feeding air to the uppermost fuel. As the fuel burns down the short tube would sink into fresh fuel until it sunk to its full length. It does not look like the short tube reaches the very bottom so it would theoretically be leaving some slower burning coals at the end of the fuel burn.
This raises an interesting thought as it relates to
rocket mass heaters and the ability to pre-stock large amounts of fuel. Could this same type of self lowering inlet air duct be incorporated into a
rocket mass heater thereby allowing a larger stock of
wood enabling less frequent feeding?