The soft appearance of the water in the photo above is known as a veiled effect. Used on waterfalls like this one, or on flowing rivers or the ocean surf, the effect can be quite pleasing.

The main requirement is a slower shutter speed. Different environmental lighting conditions will require different speeds, so you should experiment with your shutter speed and aperture to find what works. Generally, though, you'll want to avoid full midday sunshine, as the light will be too harsh to get the desired result. The above photo was taken mid-morning, and the waterfall was nicely shaded, so I didn't get blown highlights resulting from a slow shutter.

While you're experimenting, try out a polarising filter as well.

For those who like to know locations, I took this photo in Pretoria, the capital city of South Africa.