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“You must be shapeless, formless, like water. When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip and it can crash. Become like water my friend.” ― Bruce Lee
How do you become like water? What are the advantages of such a practice in martial arts?
Bruce Lee's training partner, Dan Inosanto, gives some insight in an interview for the book The Masters Speak in regards to forms (emphasis mine):
Q: What do you think about forms?
A: I have to say that Bruce was not anti-form and neither am I. Forms or katas are a way to learning proper body mechanics. Forms can be a part of your training, but your entire training shouldn’t be based on them. They can be useful to structure certain knowledge so you can preserve it, but once you understand it you should freelance. You don’t have to follow any particular sequence – you can flow. But as far as teaching is concerned, the instructor needs to have a format, a structure, and a technical progression in order to pass-on knowledge – even if later he discards that structure and mixes the material. The key is not to be bound by the form, but to learn from the form.
If you view the cup, the bottle, or the teapot as an experience in martial arts (whether it's a new kata, a different martial art, or combat situation), you should adapt and react to what you're presented with instead of strictly following how you have trained before: when you're in the cup, fit the cup. Don't try to fit the bottle in the cup.
A personal example was my transition from Taekwondo, which I learned as a kid, to MMA when I was in college. Most of my Taekwondo training was form-based, and the few sparring tournaments I participated in were point-based. If I had restricted myself to only my Taekwondo knowledge and habits going into MMA, I would have been destroyed. I had to adapt and learn new techniques or modify old ones to fit into the form that I was entering. However, occasionally I'd see the "cup of Taekwondo" appear in MMA and be able to flow back into a good side kick.
On the mental side, I always interpreted the quote as empty your cup metaphor. In effect, it suggests one should abandon one's preconceptions and "just" train what is shown. Many times, whoever teaches shows something that seems to be pointless, unnecessary, and even a hindrance. However, generally there is a set of reasons why a student should do this. Those might not be apparent straight away.
Bruce Lee was interested in many martial arts of different origins (e.g. boxing) which were a great change from the arts he learned in his youth. It does take mental flexibility to adapt to new art, new teaching methods, and new philosophies.
The physical side is that one should not have a preconception of how the fight will happen: "Be fluid" kinda fits well. In the Aikido world, we have Mushin Mugamae (No mind, no posture) which hints at the same thing and is a key concept behind the randori-ho training method. The latter is designed to take formal kata and shape them so one can learn to use them against increasing resisting partners.
Fundamentally, Bruce Lee was discussing being flexible in one's training and practice of the martial arts. It's not a specific technique, but rather always being willing to consider the situation, to choose the right approach for every situation rather than to decide on a best approach and then apply it everywhere. Specifically within martial arts, this involves training multiple methods to deal with a given attack, or to deliver an attack, and to adapt your style in practice based on changing circumstances. To give a concrete example from my own martial art, Capoeira, I might train a defense against an incoming meia lua (inside crescent kick) by doing a side dodge, or I might drop into a crouch and turn away from the kick to start my own. I might just step out of range, or step forward to rob the kick of its power. Those are all ways I might train the movement, by myself or with a partner. When actually sparring, I might do any one of those things depending on how I'm feeling and how my opponent is reacting. I might even do something completely different, like miming actually being hit in an exaggerated fashion, in an effort to change the game to a more playful one.
Similarly, one might train a simple technique like a front kick in various ways, from changing the target (striking at different heights or to one side or the other) to changing the stance it's delivered from (from a traditional back-leg technique from a front stance to a quick teep off the front leg to delivering it from less stable positions like as you're standing from a lying position). And similarly, when in sparring or a fight, you might choose to deliver it in different ways based upon how the situation evolves.
Honestly, it's never going to be possible to be entirely "like water". As is often pointed out, what you practice, what you drill, is what you will likely do when under pressure, and that reflexive action is necessary to be able to fight with any degree of success. But the more you practice different reactions, the more likely it is that you can pick an appropriate one for the situation, even in reflex.
Strengthen your will to pay attention to your observing eye like Miyamoto Mushashi says in the 5 rings and be critical of your perceiving eye, that way all your perceptions and emotions come from a place and truth and objective reality rather than a emotion and some subjective reality your mind may try to concoct to cope with unfortunate circumstance. Do that with everything constantly that way you can adapt to your environment similar to how water adapts the constraints imposed on it by its environment. Water has no perceiving eye, only an observing eye, always bending and conforming to its container, there's nowhere it won't fit since it doesn't try to take a shape reality will not allow. Be like water, adapt to your environment.
To put it simply, be flexible and adapt in all things. First, have the flexibility to do the techniques you learn. Secondly, when you learn something, don't just learn it but be able to adapt it to the situations at hand. A lot of instructors teach katas all day long but never have you use them. As the old saying goes you learn by doing. That kata is nice to know and can make a pretty dance but if you can't adapt it to actual combat, it's nothing more then a dance. So if you go to a school, try to get one that lets you actually use what you learn. Talk to someone that does taekwondo and puts it to use. You will see that even though they learn fancy kicks they have to adapt their techniques a lot in actual combat, especially in quarter situations with stuff in the way or in clothing that makes it impossible to do those flexible kicks. No matter what you learn in life, learn to adapt it and make it truly your own. Only then do you master it.
