A water cooled cpu is one in which water is used to remove heat from the cpu instead of a traditional heatsink/fan combo. A water cooling kit comes with a cpu water block (a little box that sits on top of the cpu with an inlet and outlet that water flows through ), a reservior (a little tank of water), a radiator (the thing that cools off the water), a pump, and tubes that connect it all. These kits usually cost 100 bucks or more (sometimes much more).