The first inkling the community gets that a dam is going to be built is when sticks appear in the ground, with the chief being given strict instructions that these sticks are not to be touched. While no one knew the purpose of the sticks, a rumor soon circulates that a dam is to be built there. This didn't seem to make much sense to the community of Ndotsheni, because there wasn't much water in the area to fill a dam.
Mr. Kumalo soon learns the purpose of the dam, which is to ensure that the cattle always have water to drink. Over and above this, through the mechanism of the water in the dam being able to be let out through a gate, the nearby land will be able to be irrigated better. The young demonstrator also solves the mystery of where the water is going to come from, explaining that according to "the white man," it will be piped in from a river.
On a deeper level, I would argue that the dam is constructed to provide hope. Mr. Kumalo expresses vehement disagreement with the notion of leaving Ndotsheni at a time when "new things are beginning." The fact that there is a dam to be built speaks of the hope of new beginnings and a better life for the people of Ndotsheni.