Water wheels are just not very efficient and have other technical challenges.
They still need structures to capture and funnel the flow of water onto them from a height drop, or if you just dip one into a river you are letting most of the water flow past. The rotation you get out of it is pretty slow, so you need to also convert that into something at a faster RPM to be used in a generator. Derbies will float into it and jam stuff..etc
The main advantage you get from using modern turbines is that you feed them over a pipe. This means you can place the turbine in a place low down where it has a lot of height difference from the water surface. So you get a lot of pressure at the turbine inlet, meaning the small blades can produce a lot of force. They also spin faster so they may be directly coupled to generators. This way a fairly compact turbine and generator combo can produce a lot of power. Floating derbies will stay at the surface where they can be either cleaned up or let down stream trough water gates. The dams also tend to simultaneously serve as a way of water control, smoothing out the flow of the river to prevent it from flooding during a sudden burst of heavy rainfall, while saving water for later in dry seasons.
Waterwheels are attractive just because they are simple devices that you can dip into a random river and have it produce power. That is why they were popular in the old days. But now our hunger for power is much bigger and so we need ways that can harness as much power as possible from the rivers that are available, so we need more efficient designs.
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