It's a mesh with an equation on it. You thought it was going to something more profound heh?
How's this: when the wind blows in far off lands, swells are created. As the swells travel the periods of the waves combine to form larger swells. As they reach the shore the base of the wave slows causing the balanced wave above to break.
No, that would be real. This is a video game. So there's a mesh with a lot of points, and the points are made to move inside a program.
Which is great, because the program can be changed, causing the wave properties to change. The demo has only one wave over and over again. But the real game will have multiple waves of varying sizes, speeds, and shapes.