Old folks from the country, generally in the south, use to say on nights where there was mist/fog over a swamp, pond, river or lake that the devil was
raising hell under water. The saying "there is going to be smoke on the water tonight" came from that and means something is about to go down or someone is
getting ready to
raise hell. The saying predates the rock song by deep purples but I doubt they intended that meaning in their song. I believe their song is about a fire at a hotel.