Arcade machines handle dynamic water and fluid simulations through a combination of hardware limitations, clever programming, and artistic techniques. Unlike modern systems with advanced physics engines, classic arcade hardware relies on pre-rendered animations, sprite-based effects, and procedural tricks to mimic fluid movement. Developers use scrolling backgrounds, palette cycling, and particle systems to create the illusion of flowing water, waves, or splashes. For example, games like "Sonic the Hedgehog" or "Turtles in Time" animate water surfaces with shifting color patterns and moving sprites. While not physically accurate, these methods are optimized for real-time performance and visual appeal, delivering an engaging experience within the constraints of arcade technology.