The rate of respiration decreases in water due to atmospheric pressure (similar to when you climb up a mountain, you cannot breathe easily).
If you're wondering why the shape of the container is cylindrical, it's to keep the water pressure even around it so that it doesn't break nearly as easily as a square one, for example.
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They need oxygen to breathe. The tank allows them to stay down longer. New technology has brought us a 'Rebreather', and (soon) prosthetic gills.
See the related link listed below for more information:
Divers don't usually bring O2. The normal compressed gas in a divers tank is just compressed air. If a diver does bring pure oxygen, than that diver is going to extreme depths and needs to replace the increasing hydrogen in the blood stream with oxygen. If they are doing this this than hey usually have 2 tanks of compressed air, 1 tank of O2, and one tank of enriched air (helium and oxygen).
Correction:
The above is half wrong. The deeper a diver goes, the less oxygen will be in the gas mix (not more). Additionally, it is not hydrogen that is the problem, but nitrogen. When diving deeper, the nitrogen is replaced with helium. And enriched air is not a helium oxygen mixture, but air that has oxygen added so it is comprised of mostly nitrogen and oxygen. So the deeper the dive, helium will be added (and oxygen will be decreased) and only during decompression stops as the diver gets shallower will more oxygen be present and not until 20 feet (6 meters) will pure oxygen be used if it is a technical decompression dive.