"E. coli is a type of fecal coliform bacteria commonly found in the intestines of animals and humans. E. coli is short for Escherichia coli. The presence of E. coli in water is a strong indication of recent sewage or animal waste contamination. Sewage may contain many types of disease-causing organisms." The full fact sheet is on the web at: http://www.epa.gov/safewater/ecoli.html
The fact sheet begins with a discussion of one rare strain of E. coli, strain 0157:H7, that has caused serious disease. Fortunately this strain is rarely encountered. The great majority of E. coli strains do not themselves cause disease. However, since E. coli typically grows in the gut of humans, warm-blooded mammals, and birds, and is normally excreted by the billions in their waste, and it normally dies or is eaten by other microbes within a few days or weeks of being released into the environment, then finding E. coli in your drinking water is a good indication that sewage or animal waste was recently in contact with your water. And since sewage and animal waste can carry a wide variety of other microbes, some of which do cause disease, the presence of E. coli suggests that other, more dangerous, microbes might be present.
Public water supplies are usually disinfected with chlorine, ozone, or some other process.