A ferrofluid (portmanteau of ferromagnetic and fluid) is a liquid which becomes strongly magnetized in the presence of a magnetic field.

Ferrofluids are composed of nanoscale particles (diameter usually 10 nanometers or less) of magnetite, hematite or some other compound containing iron. This is small enough for thermal agitation to disperse them evenly within a carrier fluid, and for them to contribute to the overall magnetic response of the fluid.

What about practical, non-awesome applications?

Ferrofluids are used to form liquid seals around the spinning drive shafts in hard disks. The rotating shaft is surrounded by magnets. A small amount of ferrofluid, placed in the gap between the magnet and the shaft, will be held in place by its attraction to the magnet. The fluid of magnetic particles forms a barrier which prevents debris from entering the interior of the hard drive.

Photos from CMS Magnetics on Amazon via ScienceDump.

Quoted text via Wikipedia.