Lithography is one of many steps, but probably the most important one. You use it to expose a photoresist to create a mask for further processing. After exposing the photoresist you need to develop it, remove either the exposed or unexposed photoresist. The remaining photoresist then is the mask and you either etch or dope the surface that is not covered by the mask or you deposit material on top. And then you need to remove the mask and start all over again for the next layer. The high water usage comes from repeatedly needing to clean the surface to remove chemicals and photoresist.