Since the magnets have an inhomogenous field any diamagnetic material is being repelled away from the magnet. As water is diamagnetic, the magnet is able to form a small depression in the water. This depression deflects impinging beams from far away differently than the otherwise flat water surface.
DUDE! That's an awesome photograph! It took me a while to see it, but when I saw it, I was sold. We need to have our physics club do this for a demo sometime.