Requirements: Level 2 Engineering
Action: Drop a villager or all villagers on the rocks below the stream (number 3). Be sure to change their preferences to builder. This will take some time and you need to watch them until they become trainees. I find it best to first put all the non-builders on the hut on the bottom left of the map (number 1) just until they become trainees and then transfer them to the dam.
Description: "Your engineers harnessed the power of nature by building a dam and redirecting the overflow of fresh stream water to a patch of fertile soil. As a result, your villagers can farm now! The dam also drained the southeast flats and will prevent further flooding in that area."