Some absinthes turn cloudy when water is added. This is due to the spirit containing components that are not soluble in water (mainly fennel and star anise) and the hydration causes them to drop out of solution with the alcohol, turning the drink cloudy with a milky opaqueness known as the louche.
Thus pronounced cloudiness is an indication of a strong presence of star anis in the absinthe. Consequently a good louche is considered a sign of quality.
The addition of water not only dilutes the strong spirit but the chemical reaction it causes helps release the liquor's subtle flavours.