I just simply don't understand why so many people live in Pheonix given the issues with heat and lack of water sources.

Phoenix actually has plenty of water because of the Salt River. Tucson gets CAP water which just got whacked pretty hard in the Colorado River negotiations (20% CAP cut I think?) and I was surprised to learn that the City of Tucson has managed its water efficiency so well that nothing has to change much, price for instance.

If water supply does eventually require changes, the technically obvious and very easy change would be to reduce agriculture (pecans, alfalfa, cotton) by whatever amount is needed. Politically though, that's going to be fun. That agriculture is backed by Big Money.

The heat sucks, but the sun is very bright and my comfortable 75F house generally has a zero or small electrical bill because my roof is covered in solar panels.

The heat sucks hard for 3 months. The rest of the year is fucking glorious.