The Venice Canals are a truly unique neighborhood unlike anything else I can think of on the west coast. You'll find newer cookie cutter villages built in marinas with much wider canals, boat slips, and traffic, but nothing that has the intimate charm of the Canals.
From their eclectic architecture spanning the classic, contemporary and everything in between to the quiet walkways, quaint foot bridges, and calm waters which are broken only by the occasional kayak or family of ducks passing by... the Venice Canals offer a one-of-a-kind lifestyle and investment opportunity in what may be the largest housing market in the country.
The Venice Canals are connected directly to the ocean by the Grand Canal which both draws fresh water from and drains into the main Marina del Rey boat channel with the tides. The canals themselves were dredged and the banks were completely rehabilitated in 1992-3 and they seem healthy with plenty of sea plants, mollusks, snails, crustaceans, barnacles, birds and fish.
Here's a link to the Venice Canals Association which has more information about the restoration and Canals in general.
If you're thinking of buying a home here I'd say that the biggest downside is parking. There's only a single one-way street going through the Canals with narrow alleys branching off to the east and west on each of the three small islands. The more parking spaces a house has the better as there is no public parking anywhere in the canals.
The Coastal Commission also has a hand in Venice Land Use Policies (including environmental concerns) which will need to be addressed if your're thinking of building though this doesn't seem to have hindered a considerable amount of construction here over the last 20 years.
The Venice Canals (like Venice as a whole) aren't for everyone, but I can't think of a better place to live if a serene waterfront community close to the beach sounds like your cup of tea. Here's the link to a video featuring them on Youtube which I made several years ago though the prices have changed some since then.
Also, here's a link to the continuously updated Venice map search tool on my L.A. Beach Cities Homes website that has all the properties for sale in the Canals.