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Peel the eggplant and onion. Separately chop the eggplant, onion, zucchini, yellow squash, bell peppers, and tomato into a medium dice (about ½" x ½"). Set aside. PRO TIP: You do not need to salt the eggplant in advance. That is only needed if you are trying to draw out excess moisture, such as with eggplant parm. Here, we need the moisture to help build the stewy texture.
Heat the olive oil in a wide skillet (12" to 14") over medium heat. Add the eggplant and cook for about 5 minutes, stirring once or twice, until softened and lightly browned. Add the diced onion, squash, bell peppers, and one teaspoon of salt. Cook, stirring occasionally, until lightly softened and the onions appear translucent, about 7 to 8 minutes.
Stir in the tomatoes, minced garlic, tomato paste, and thyme. Add the water and an additional teaspoon of salt. Stir and bring to a simmer. Cook, uncovered, until the entire mixture cooks into a chunky, thick stewy consistency, about 20 to 30 minutes. Stir occasionally. PRO TIP: If, toward the end, the ratatouille starts to seem too dry, dose it with a couple tablespoons of water at a time, until the mixture becomes stewy again.
Taste for seasoning (I usually add an additional ½ teaspoon salt or so). Add the pepper and fresh basil. Give it a good stir, and serve warm or at room temperature.