Yadayim, Chapter 1, Mishnah 3. The opening chapter of Maseches Yadayim lays out the requirements of netilas yadayim, and our mishnah turns to the water itself: which water may be used for washing the hands, and what can happen to water that disqualifies it.
The mishnah begins: "hamayim shenifsilu mish'siyas habeheima, bekeilim psulim, uve'karka'os ksheirim" - water that has become so foul that an animal would not drink it is unfit for netilas yadayim when it is in a vessel, but it remains fit when it is gathered in the ground.
Why the distinction? Regarding a vessel, the Bartenura explains that Chazal established the mitzvah of netilas yadayim only with water of a quality that an animal would be willing to drink; once the water has sunk below that level, it is no longer the water the Rabbis had in mind. But water collected in the ground, such as a pool, is a different matter entirely: it has the status of a mikveh. Since a person may immerse his entire body in such water, it stands to reason that he may certainly dip his hands into it. So water rejected for use in a vessel may still serve when a person immerses his hands in it in the ground.
The mishnah continues with another way water becomes unfit: "nafal lesochan dyo, komos, vekankantom, venishtanu mareihen, psulin" - if ink, gum ink or kankantom (vitriol, used in producing ink) fell into the water and changed its color, the water is disqualified. Water that has taken on the appearance of a dye is no longer plain water.
A further clause of the mishnah adds two more ways water loses its fitness. It rules "asah bahen melacha": if the water was pressed into service for some form of labor, it can no longer serve for netilas yadayim. The same holds, the mishnah adds, "o shesharah bahen pito", where a person soaked his bread in it; in either case the verdict is psulin, unfit. The Bartenura formulates the governing idea: water that has been put to such service has become spent water, and its halachic identity is thereby transformed. Nothing about it has changed physically, yet in the eyes of halacha it has departed the category of water and now belongs to a different one.
An opposing opinion follows. Shimon haTimni maintains, in the language of the mishnah, "afilu niskaven lishros bezeh", even where the intent to soak was directed at this particular water, "venafal lesheini, ksheirim": should the bread land in a second body of water, that second water stays valid. The word afilu ("even") sits awkwardly in the sentence, and there are versions of the mishnah that omit it altogether, in which case the ruling reads far more smoothly. The Bartenura retains the word and resolves the wrinkle by hearing the line as an astonished question (betmiha): could anyone suppose that when a person aimed to soak his loaf in one place and it tumbled into another, the second water should be ruined as well? He had no intention whatsoever of making use of that water, so he never spent it. Shimon haTimni's conclusion is that water of this sort remains perfectly valid for netilas yadayim.
The Tosafos Yom Tov fills in the background, citing the Maharam. The soaking discussed by the first tanna evidently refers to soaking done deliberately; water into which bread simply slipped from a person's hand, with no intention of soaking it there, would remain fit. According to the first tanna, though, once the man did intend to soak his bread, the water is disqualified even if his intention had been directed at a different body of water and this is the one the bread actually fell into. It is precisely against this that Shimon haTimni argues "afilu niskaven": even where there was intention to soak, if it was not intention to use this water, this water stays fit.
The halacha, however, does not follow Shimon haTimni. In practice, water into which one intended to soak his bread is disqualified for netilas yadayim even if the bread ended up in different water than the one he had in mind.