Water wheels were one of the major turning points fro humanity in moving towards machine rather than animal labour. They were used in corn/grain mills primarily but were also available for sawmills, fulling mills (cleaning and preparing cloth) and many others.
The first big advance I can think of for your town is breadth of industry. At the minute labour intensive industries such as milling corn have to be done by hand or on the (presumably limited) river bank. With the area these activities can be done in increased dramatically there will be room for more mills widening the industrial scope to include all major watermills of the period. In your area sawmills and iron trip hammers will probably be particularly popular due to the logging and mining industries.
People are inventive (evidence here) so it won't be long before waterwheels become more used in your town. One new technologies I can thing of are cranes. In your time period most heavy lifting was done by humans walking inside a giant wheel which wound a rope. 658
Using waterwheels to turn the ropes will greatly expand your lifting capacity. Some Islamic water wheels could lift 2550 litres of water a minute so that suggests some pretty hefty lifting strength. I don't know exactly how much these water wheels can lift which should make lifting iron ore from mines easier as well potentially providing winches for tree extraction. The only issue might be getting the stuff off the waterwheel at the top if you can't stop it turning but that issue should be resolvable with some sort of brake or coupling/uncoupling axle. The crane would also obviously be useful for building stuff. See Guedalon castle, France for an example of the classic medieval hamster wheel cranes in action.
A slightly less likely technology would be the first cars. If a waterwheel were attached to a (larger) normal wheel then you would have a self propelling car. Whether these would replace carts I don't know as I suspect their would be a lot of issues with building them but it is definitely a possible technology.
I suspect I have missed a lot of potential applications such as military applications (not really useful in a small town) and other civil ones. 658