It could have been used as a storage tank.
Seeing the plumbing at the bottom, i would assume it was set up to flow cold water from bottom and heat will rise to the top.
I would put it back to the correct set up, pulling the plastic cap on top where the cold water inlet is and installing your pipe there.
That setup will still fill and heat, but it bypasses the dip tube design. Normally, cold water enters through the top and a dip tube carries it to the bottom, so hot water rises and exits at the top. feeding into the drain, the cold water is just mixing at the very bottom. It can work, but it’s not ideal plumbing practice. it can shorten the effective hot water draw and sometimes create turbulence/sediment issues.