A watercooling setup consists of a radiator (to cool the water), waterblock (this goes on your cpu), a bracket, a pump, sealed hoses and a resevoir (store the water)
The water usually goes from resevoir->pump->radiator->waterblock (some setups may have waterblock first), therefore the pump pums the cooled water to the waterblock first thus cooling your cpu
The radiator is usually located where your front harddrive is, waterblock goes over your cpu, and pump is usually at the bottom of your case along with the resevoir
A fan is usually required for the radiator and hoses are the "highways" from each major item: pump, radiator etc
Watercooling is known to give you temps in the low 20s =0
You use only distilled water (tastes nasty) in watercooling
But watercooling is quite expensive...about $100 if you plan on getting each part individually, or
$135 from frozencpu for a complete kit
You must take extreme caution while installing it, making sure all the tubing is securely set on the pipes, because electricity+water=fubared computer