The source code is really small and quite readable. From the source:
var homeDX=this.homeX-this.x;
var homeDY=this.homeY-this.y;
var homeDistance=Math.sqrt(Math.pow(homeDX,2) + Math.pow(homeDY,2));
var homeForce=homeDistance*0.01;
var homeAngle=Math.atan2(homeDY,homeDX);
It seems it is just using gravitational like force, where a point is attracted to its original position. So I guess it is a more common effect for particles.
Definitely a common effect. I remember seeing this kind of thing in the demoscene a lot of times. In fact I remember seeing a larger evolution of this recently.
What they did is used smooth particle hydrodynamics to simulate water, but then also use the text mesh as a local attractor. So the water would drip onto the invisible mesh, but then it would stick to the text just a bit more than normal allowing the words to form.
In case it's of any help to the author, it basically doesn't run on FireFox 3.6.22 on Ubuntu 10.4. Completely unusable - pegs a core at 100%, takes minutes to do anything. A mouse click makes it change, but you can't "play" at all.
Which is a shame - it looks like it might be very impressive.
It got a lot better from 4+. On the other hand it works great on Chrome. Opera is a bit slow as well, not as bad as FF 3.6 (using Ubuntu 10.4 as well).
I miss that old classic stuff. Old animations with absurd graphics for the time. An S3M or MOD playing in the background. Really ground-breaking stuff. One of the classics:
http://www.genesisbbs.com/appstem2.html