Ferrofluid is a magnetic colloidal mixture made out of extremely small ferromagnetic particles that have been suspended into a carrier fluid, which in this case is water or another natural solvent like oil. (Therefore because of it's extremely small size remains as a liquid). It is usually composed of extremely small nano sized iron containing substances such as magnetite and hematite and are often described as more superparamagnetic because they are affected by magnets very easily. When a magnet is placed near Ferrofluid, you will beable to see the displacement of the magnetic field 3 dimensionally instead of the tradional two dimensional iron shavings technique.
I love playing with ferrofluid and although good quality types are expensive, it can be used for educational purposes to learn about magnetical fields while having fun. This ability to change phases with the application of a magnetic field will enable them to be used as seals, lubricants and may even be used in the future for nanoelectromechanical systems. Ferrofluid is a unique chemical that can be used for many things, therefore I rate it with a 10/10 for its potential and its properties.
Definitions : (colloid - means a substance mixed evenly throughout another substance i.e. fat in milk.)
(Ferromagnetic - the ability to acquire the status of a permanent magnet)