The "water" consciousness homunculi inhabit a liquid that resembles water. They can take over the mind of anyone who drinks the "water" (including animals) and create a hive mind over multiple bodies. However, the homunculi must struggle with the existing consciousness of the body first. If the homunculi lose, they can share memories from across their hive mind, or share consciousnesses entirely.
Not much is known on the exact nature of the "water". In 1935, Firo Prochainezo notices a shift in Hilton's personality (as Annie) while she talks to Huey Laforet as Leeza Laforet. This leads him to believe that the girls Hilton has taken over may still be alive as part of Hilton.
It's been theorized that the consciousnesses that inhabit the "water" come from a separate plane of existence.
The "water" was first developed by Huey Laforet, using notes from Szilard Quates' research on the Grand Panacea stolen by Lebreau Fermet Viralesque. After Szilard's death, the "water" was recreated independently by his researchers.