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A spa town, or simply spa, is a town that many people go to for health reasons. There is usually a spring there, or several springs. The water that comes from these springs is good for curing many illnesses. When people go to a spa town to get better we say that they go to "take the waters".
The word "spa" comes from the Belgian town Spa. In continental Europe a spa was called a ville d'eau (town of water). The term spa is used for towns or resorts which offer hydrotherapy (making people better with water). This can include cold water or mineral water treatments and hot spring baths.