Although hermit crabs must keep their gills moist in order to be able to breathe, they cannot breathe underwater. In fact, they will die if they are submerged in water because their gills will not provide the oxygen they need to survive. This is why it is recommended that owners keep a piece of sponge in their water dish, so they have something to hold onto and will not drown.
Hermit crabs have tiny gills that are located at the top of their legs. Oxygen in the air dissolves into the moisture around the gills and then is brought into the crab's bloodstream. This is why the gills must be kept moist.
There are several ways in which hermit crabs keep their gills moist. One way they achieve this is by using their front claws to splash water onto themselves. Another way that hermit crabs stay moist is by carrying around an extra supply of water in their shells. In addition, they may use fluids from inside their bodies to keep their gills moist.
Within a tank setting, it is recommended that owners keep the tank very humid, which provides the crab with a source of water so that they do not dry out and die.