The waterfall was created when a nasty-bad blew up right next to me, also killing me in the process. The explosion took out a roughly 6x6x6 sphere of ground. Since it was next to water, the water rushed in to fill the hole. But fluids seem to flow forever, without equalizing pressures, which leads to interesting effects.
Here's the same area from a different perspective. I'm perched atop 30 or so blocks to make this shot. There are big, fluffy, square-edged clouds just off-camera. They always drift East to West.
You can see my working inventory at the bottom of that screenshot. Much of the game mechanics involve crafting items. For example, the bow was made from string and sticks. The sticks were fashioned out of processed wood, from trees which I cut down with my bare hands. The string was acquired by killing a few giant spiders, which was possibly the most exciting experience in game so far. I was experimenting with pouring water on the heads of the spiders when I got caught in the down-flow and trapped in a cavern with a monster-generator. I am surprised I survived.
I'm sticking with the one-player mode for now, because I've heard too many people getting their creations blown up by other players in multiplayer.
Meanwhile, I'm digging up a storm- that hill is basically my home. There are three doors to it in that screen-shot, though you'd have to know what to look for to find two of them. You also can't see the reason I adopted this hill. On the other side, there's a lava flow coming out of the cliff that's really pretty at night-time.