Not just the prop shaft but water enters large ships everywhere. They get gathered in a sump at the bilge. And it gets pumped out regularly from there.
In a large ship,even with a 100% watertight hull, rainwater or sea spray will slowly enter the ship one way or another and these collect at the bottom eventually to be pumped out.
the device on the shaft is called the stuffing box
they have a quasi tight fit around the shaft
a common wood used is/was iron wood
[https://en.wikipedia.org/wiki/Ironwood](https://en.wikipedia.org/wiki/Ironwood)
here is some info from west marine
[https://www.westmarine.com/west-advisor/Stuffing-Boxes-Shaft-Seals-and-Shaft-Bearings.html](https://www.westmarine.com/west-advisor/Stuffing-Boxes-Shaft-Seals-and-Shaft-Bearings.html)
the general idea is if sand enters the gap the sand will sink into the stuffing and not be abrasive. if it was a metal-metal joint the sand would have nothing to sink into and would thus with metal-on-metal grind away the shaft or bearings
in some ways this is similar to Babbitt bearings where a soft metal is used as the bearing surface
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