That's what I was thinking in the first place...matter/energy creates the ripple.
No, in the analogy that CS is using, the ripples are matter/energy. And these ripples can group together to create much larger ripples or disturbances. In your picture of the heavy ball on the wet towel, you asked whether the ball was on, under or in the towel, so to speak. Well, in CS's analogy, the ball is made up of ripples in the towel... there is actually only the towel! In other words, there is only space-time. You are I are made of space-time itself!
(I must admit that we're being a little loose here, and extending the concept of space-time to include all of the quantum fields, not just the metric)