There are two major dams on the Palmiet River, the Eikenhof Dam above Grabouw, and the Kogelberg Dam lower down in the valley. The Kogelberg Dam is part of a hydroelectric pumped-storage scheme, and connected to the Rockview Dam, which is connected to Steenbras Upper Dam.
The diversion will work when the farmers release some of their water quota into the Palmiet River, which then flows into the Kogelberg Dam. From there it will be pumped up the mountain into the Rockview Dam, and transferred across to Steenbras Upper Dam, which will then release it into Steenbras Lower Dam, and hence onto the CoCT water filtration works above Gordon's Bay.
Edit: Interesting detail on Wikipedia:
Steenbras Upper Dam is also linked by an open canal and pipeline to the Rockview Dam that forms the upper reservoir of the Palmiet Pumped Storage Scheme, which is a separate pump storage scheme operated by Eskom and the Department of Water and Sanitation. The link allows water from the Palmiet River to be transferred to the dam.
Yes its complex (physically and politically), which partly explains why it took a while to get organised!
BTW, the Eikenhof Dam has enough water at present (63.9% at 29 Jan 2018), so Grabouw is not going to run dry.
Edit: The text in this one comment is about the same length (in total) for all 4 Wikipedia entries for those dams!? See:
https://en.wikipedia.org/wiki/Steenbras_Dam_–_Upper