Most washes are designed to dry matte, therefore they usually contain matting agent.
As Vexilla says, this is suspended in an an acrylic medium with the other components of the wash. By over-thinning with water, the medium starts to break down, and this reduces it's capacity to hold the matting agent. The white soapy marks you see are the dried remains of the matting agent where is has over-accumulated having failed to remain suspended in the medium to give the intended even (and therefore see-through) effect to the model.
Adding more medium as well as a little water fixes this.
By the way, you can also get similar effects with paint if you over-thin it. Done deliberately, it can produce interesting effects, like this model's sword (painted by another LAF member here):