It would be impossible to name one specific Olympic sporting event which demands the most physical capabilities from its participants, but there are several contenders. Decathlon, heptathlon, weightlifting, and water polo are all very demanding events. Every Olympic sporting event requires a certain amount of natural ability and physical skill set from competitors, although many athletes who specialize in one type of event tend to train for the specific demands of that event. Cyclists, for example, develop strong leg muscles and cardiovascular stamina, but they may not have significant upper body strength.
If the criteria for the most demanding Olympic sporting event was overall physical ability, then the men's decathlon or the women's heptathlon would certainly qualify. Competitors in those events must learn the proper techniques for numerous track and field events, even if their particular body type is not suited for specialization in any of them. An ideal decathlete or heptathlete must have both speed and endurance, along with a working knowledge of field events such as the shot put and javelin throw.
If the determining factor is brute physical strength, then the heavyweight division in weightlifting would be a candidate for the most demanding Olympic sporting event. Successful weightlifters must develop tremendous upper and lower body strength to perform each style of lift safely. The sport is so physically demanding that most competitors need many hours of rest between lifts just to recover from the strain of a two-minute competition lift.
Some might argue that form follows function when it comes to sports, so the athletes with the most perfectly developed bodies must need them to perform their events well. It is said that the sculptor commissioned to create two nude torsos of a male and female athlete for the 1996 Olympic games in Atlanta, Georgia used a model from the men's water polo team and a model from women's track and field.
More than one sports professional at the time suggested the reason a player from the men's water polo team was selected is because the sport demands a significant amount of physical skills, from strong swimming technique to upper and lower body strength. The limited time-outs and substitutions mean that water polo players must spend a long time treading water in a pool while using their upper bodies to maneuver the ball. If one Olympic sporting event could be said to require the most physical skills, one could made a strong argument for water polo.