So I tested this because I read the game help text and not to say text is always right in games, but it seemed straight forward to me if you read it for what it is, and not assumption.

But to be fair, the UI is terrible. Really terrible, and hence the confusion. Food and water ARE shared via supply line, but it is hard to see it and people think it is not shared.

Couple concepts to explain -

1- Settlers require (1) food + (1) water per day consumption - not sure if eventual starvation means death or as help text implies that you just 'lose' entire settlement due to massive unhappiness, but either way some bad thing happens

2- KEY CONCEPT: This daily consumption can be supplied various ways or combo of any:

• locally by water/food grown at the settlement that meets or exceeds the daily consumption of the total settlers
• locally by zero produced water/food but STORED in local inventory - it will just deduct from this stockpile
• via supply line by taking any excess daily PRODUCED or STORED supply

3- The UI is bad because when water/food IS being supplied either by stockpile of stored supply, or by the supply line sending the daily excess from another linked settlement, it does NOT tell you that. It sits at 0 or whatever low number, making you think you are in deficit

The reality is the local settlement with zero produced water/food can survive - it may not be super happy because there isn't what is considered local EXCESS which is one factor that seems confidently linked to happiness rating, but the settlement will survive and not give you the snarky voice messages re: not enough food, not enough beds, etc

4- To test this for yourself it is very easy - take Red Rocket or other settlement that starts with 0 settlers.

• Goto this settlement, the UI will be all green because of course there are 0 settlers. No supply, but no demand. So the UI so far is not dumb. All green.
• Make sure you empty local inventory of everything, or at least everything that is food/water related to assure yourself there is nothing to eat or drink here
• Now send 1 person to this empty settlement that produces nothing - no water, food, power - just one single bed so the settler has a place to sleep.
• Do NOT setup supply line yet - the instant you send that one settler, go there and look at build UI - it will now be lit up in glaring red highlight for food and water - clearly telling you that this settlement is in deficit for food and water.
• Now send a supply line to this settlement that has stored no food/water, nothing produced - the instant your supply line is connected, the settlement UI will now change to all green - indicating that while 0 food and 0 water is produced there, it is no longer a deficit condition

So basically, excess food and water form other settlements are connected via supply line, but the lame UI doesn't reflect that you are at the minimum of whatever you need, like say (12) in parentheses to indicate you have 12 food being 'produced' there but via supply line.

It is just confusing because like lot of other things, game doesn't explain well in tutorial messages, and help text has to be read very explicitly along with trying stuff out to kinda get light bulb to go on.