This is a wonderful slang word for gossip and we have to thank sailors for it.
Water for drinking on a ship was kept in a butt, or a large cask. The cask was scuttled, that is, a hole was cut in it, usually with a hatch as a lid. The hatch could be lifted so the water could easily be scooped out of it.
Scuttle also has the meaning to sink a ship; originally this was by cutting holes in it.
In the same way that office gossip is supposed to take place around the water cooler, on board ship the sailors could take a few moments to exchange stories while having a refreshing drink at the scuttlebutt.
Scuttlebutt came to be used by sailors as slang for the gossip itself – it’s hard to imagine water cooler ever taking on the same meaning.