This is a ferrofluid, one of the many amazing things that can be built from nano-particles. To make a ferrofluid, you need to coat tiny (i.e. nano tiny) bits of iron with a chemical to reduce surface tension.
In one way, the coating is actually the amazing thing that you're seeing. By controlling exactly where chemicals go, and how they bond, engineers have built a coating around each iron nanoparticle that sheds water. By covering each tiny iron structure with this water-repellent coating, the iron bits really are governed only by two forces: magnetism and gravity. As a result, you get to see magnetism showing it's true behavior as the particles can arrange themselves freely - magnetism rocking out!
Just to demonstrate how well this new type of coating works, check out this little clip about magic sand. If you haven't seen it, it's nano-coated sand which you can dunk in water without it getting even the slightest bit wet. Bizzaaah! (You'll probably want to buy some after you see the video - if so, here you go.)
Check back here during the year - the world of Physics is amazing, and it's one of the places where the future is being invented!
Spend a few minutes clicking around - if you're a student of Physics at SJP, you will find some useful things for yourself as you move toward becoming a more awesome do-er of science. Have fun thinking about the world!