Simulating the complex ebbs and flows of liquid in real-time is not easy, but this jaw-dropping new demonstration from PhysX shows we'll eventually get there.
This new system is called Position Based Fluids (pdf), and it works off a previously developed model called Position Based Dynamics. The new algorithm reduces water to a large series of small particles that adhere to a strict set of rules and conditions, including the influence of artificial pressure (to improve particle distribution), the creation of surface tension (to create those gorgeous splashes), and even gradual energy loss. It can even account for the injection of new energy back into the fluid (called vorticity confinement).
Here's a supplementary video:
More at PhysX.