The pencil appears bent at the interface of two media, air and water in the picture. This is a good example of Refraction of light.
Refraction of light occurs due to difference in speed with which light travels in different media.
It should be noted that speed of light in a given medium, say either in water or in air is constant.
In the Picture:
When a ray of light emerges from the water and travels towards the eye of the observer, the ray of light bends away from the normal drawn at the point of contact and the object. This physical phenomenon (bending of light) is called Refraction.
The angle of refraction can be calculated with the help of Snell's Law.