Hilariously enough apparently for the first three weeks they started on this scene the water simply rocketed up into the air. Most of the Hobbits/Dwarves in this scene were done on green screen with them flailing around in barrels then added in later with the water simulation.
On the subject of Smaug, the four artists assigned to him hand painted all the little fractals/patters of his scales. Every single scale on him was hand painted. Hell, I can barely paint a flower without making it look like bright vomit and getting bored outta my tree.
Though I'll never understand why the hell they made Benedict Cumberbatch the motion-capture for Smaug's movements;
It's hilarious to watch, but seriously??? It would have made more sense of they used Komodo Dragons or even iguanas than some lanky British dude.