Magnetic putty is a lot like ferrofluids (Trippy Watercolor and Ferrofluid Photos July 5, 2012)​: magnetic particles suspended in a mixture. In the case of magnetic putty, it's thicker: you can mold and shape it with your hands and it will maintain its form. 

But put it near a magnet, and look at it come to life. A bit creepy. Totally trippy.​