It looks blurred and desaturated. I'd recommend doing it in Photoshop for maximum cross-browser/device compatibility, though it can be done with WebGL effects too.
Filter -> Blur -> Gaussian Blur
Image -> Adjustments -> Hue/Saturation (slide the saturation down)
Also if you want to know some theory behind this:
The blur is emulating either eye or lens defocus (lens is easier to denote and explain).
The reduction in saturation is called aerial perspective, and is due to light scattering from air and water particles. Here's some further reading: http://en.wikipedia.org/wiki/Aerial_perspective