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.