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The need for distilled water is simply to keep the unit clean. As the water is broken down any impurities will remain. Eventually the generator needs to be refilled as it'll run out of water. The impurities continue to build up and will eventually short the generator.
The OP's example is a bad design and 100 amps is a ton of energy. I've seen generators running on 5-10 amps that produce a fair amount of HHO. I can't remember (I have it written down at home) but IIRC there is one that is claiming 60 lph @ 10 amps I believe. This is supposidly enough for most car engines.
The oxygen gets drawn into the engine and is used as part of the combusion.
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