Instead of spreading out in straight lines, the light changes direction both when it enters and leaves the glass of water. This change of direction is called refraction and it happens because the light slows down as it enters the glass and speeds up again as it leaves.

This visual distortion is witnessed if you look at a pencil submerged in a glass half-filled with water. As you sight through the side of the glass at the portion of the pencil located above the water's surface, light travels directly from the pencil to your eye. Since this light does not change medium, it will not refract.

When we look at objects through a glass cup of water, the light coming from those objects goes through multiple refractions. As the light enters the cylindrical glass from the surrounding air, it bends or refracts due to the change in density between the air and the glass.

The light reaching your eye (or in this case our camera) coming from the arrow is refracted through the glass of water. In fact the glass of water acts like a convex lens (like you might have in a magnifying glass).