What does 苦 mean here?
The whole sentence may be translated to 'The Ansu Prefecture was troubled by (the damages of) the waters of Xu'.

In classical Chinese, parts of speech are easily mutable (詞類活用). Here is a typical case of 意動用法. You can consider 苦 being equivalent to 以⋯⋯為苦 (lit. 'to consider ... as bitter/unpleasant'; 'to be troubled by').

In terms of grammar, 苦 in this instance is not an adjective but a verb.

In terms of meaning, the verb is supposed to indicate the feelings or thoughts (意) of the doer. That is also to say, there is personification of the Ansu Prefecture.

Another example is 異, as in 漁人甚異之 (meaning 漁人甚以之為異 'the fisherman thinks that as odd very much'). Originally an adjective meaning 'different; odd', here 異 as a verb indicates the (dis)belief of the fisherman.

The rest of the sentence is parsed into 徐水 and 害 (n., damage), both translated in 1. 徐 in 徐水 is obviously not the adjective 'slow; gentle'. 徐水 as a whole is currently the name of a district in the Hubei province (which matches with the text), but I think it is better to parse it literally here, given the context of flood.

Excellent observation on monalisa's part. Just to supplement: the classical Chinese for a terrain that is even is 夷. Here 利 as mentioned refers to conduciveness.