This is a reflection off particles in the atmosphere. When the combination of temperature, humidity, and droplet size are just right, rain falls. Thunderstorms are some of the most awe-inspiring, and potentially dangerous, of atmospheric phenomena. Funnel cloud formation in thunderstorms gives cause for alarm. Tornado potential is great.
Funnel clouds can form over bodies of water, too.
If the cloud touches the water, you have a waterspout . It turns back into vapor before reaching the surface. This is virga .