Wow, that's incredible! Thanks for sharing.

Sorry, I miscommunicated --- fluid simulation isn't expensive as long as it doesn't affect gameplay. Because then you can do it all on the GPU, and you don't have to transfer it back to the CPU (to perform checks like "is the water touching me?")

In this case, From Dust is simulating the fluids on the CPU, then building geometry / textures on the fly and uploading that to the GPU and rendering. It's quite an impressive tech demo, both from a technical and artistic standpoint.