Basically, it uses a sector that surrounds another to trick the renderer into displaying two sectors at the same place. One, the "physical sector" is where the player moves, the other, the "liquid surface", has 0 height and serves as an insubstantial ceiling/floor in the middle of the physical sector.
In MAP31, sector 72 with ceiling and floor both at -600 and a FWATER texture on both surrounds sector 74, which is properly closed and has a a ceiling at -324 and a floor at -800, with a FWATER floor and a DEM1_6 ceiling. The result is that the floor texture from sector 72 hides the bottom of sector 74 when seen from above, and inversely when in sector 74 the actual ceiling isn't seen as sector 72 is displayed above instead. Sector 72 is not closed.
MAP32 uses a similar system, but more complex. Interestingly, DB2's 3D renderer actually displays the "liquid surface" effect as intended, but it doesn't render the floor and ceiling texture for the "physical sector". Sector 35 is the surface sector, this time completely closed, with NUKAGE texture and height of -20 for both ceiling and floor. It both surrounds and is surrounded by sector 36, which has a ceiling at 128 and a floor at -128, with FLOOR5_1 and 4_8 for textures. Then the whole assembly is surrounded by sector 37 which is also a 0-height sector (floor and ceiling at -20).
