FET source body connected to the same potential
The source and the substrate have common potential. However if the source and substrate have common potential that means the conductive channel formed is not wide enough to connect the source with the drain there is a gap between the n type channel formed and the source. So how does it really work?

It works precisely how you say it does not. The conductive channel formed is wide enough to connect the source with the drain. The channel might be a little asymmetrical, like this:

(image from electrical4u.com)
Provided the gate voltage is high enough there is no gap and the conductive channel is, well, conductive.