Yes, those on the outside will have choppier waters as the water bounces off the sides of the pools. The modern competition pools do a pretty good job of reducing this effect, but it is always there.
Plus, you'd have a big advantage later if you start fast and gain a few meters from your two neighbors. Their waves would slow you down. Gliding is much faster than fighting through rough waters.
Could probably increase fairness by doubling the width and throwing away the last few lanes (leaving them empty). But would that incentivize the edges? I don't know.
They could get almost perfect fairness in any kind of Olypmic-style race by just letting competitors all use exactly the same lane, one after another.
In earlier times, measuring equipment wasn't accurate enough, so races had to be done in parallel with people starting at the same time. Today, that's no longer necessary. In fact, people racing one after another is exactly how we hand out world records.
Of course, the Olympics and other events like them aren't there to find the best athletes in some absolute sense; these events are there to entertain spectators. Otherwise, swimmers could just do time trials at home and mail in times.
And spectators like people racing each other at the same time.
It's not supposed to be fair (as in equal) though, lane assignment goes inside-to-out based on qualifying times. The easiest way to avoid the chop is to get out in front and stay there.
> The easiest way to avoid the chop is to get out in front and stay there.
While that's technically true, the drafting effect actually means that being a bit more than a body length behind the swimmer next to you is beneficial to you. That's another part of the philosophy why the fastest swimmers are assigned the center lanes, and the slowest the outermost lanes, to balance out the choppiness of being by the sides with creating a potential for drafting. Of course intentionally drafting is not a strategy that will win you the race, especially in short events, but in longer events it can be important to keep pace with the swimmer next to you while they need to expend more energy and you draft off of them either with the intention to eventually pass them or to stay ahead of the swimmers on your outside.
They put the most favoured (by entry times or heat results) swimmers in the center lanes, slower ones out from there. You've probably noticed that you usually see the race leaders in the middle, and you hardly ever see the edges winning.
In cases where there are less swimmers than lanes, they leave the edge lanes empty.