There are several types of Boundary Conditions (BC’s) you may use depending on (1) the problem you want to investigate and depending on (2) available data. Here is a rather general answer: If you use a fixed potential (1st kind BC) you ad-hoc impose the solution (heads) along the surface waters. Instead if you use a 3rd kind BC you rather use a reference head href, which refers to the surface water head. Then FEFLOW solves for the GW-head h. Depending whether h is smaller/larger than href you have in inflow/outflow by taking the transfer rate Phi into account: q = -Phi (href-h).
Please find more details in the FEFLOW book, Chapter 6, page 193.
