The way it apparently works is this: make giant hole in the sea.
Now, the sea water that was there is getting pushed outwards by some unatural means. SO, it's not that the water is going into a hole and disappearing. The hole is a gap in the ocean caused by some paranormal/scientific phenomena pushing the ocean itself away from the hole. Since the ocean water has to go somewhere, it goes up.
Imagine dropping a pillar as wide and long as Lulusia as deep into the ocean as possible. It would cause the water to be pushed up, and cause flooding as a result.
This explains why Water 7's water level is rising: as Imu destroys islands over time, the water level begins to rise.
The Ancient Weapons will definitely be involved in dealing with this, and I think they'll all work together somehow in a way we can't really get yet.
Half of this comment was only possible thanks to
@Admiral Maynard giving me a great explanation of how the hole in Lulusia would raise the water level, thanks a bunch, solis.