Ultimate Koi Clay and other fine bentonite clay products appear to dissolve when mixed with water, but they only go into suspension. The clay is made up of billions of microscopic particles. Below is an image of bentonite clay at different magnifications up to 20,000 times it's original size. As these particles spread out and settle in the pond they adsorb and absorb toxins from the water.
The best explanation I've seen on how calcium bentonite clay removes toxins comes from clay expert Ran Knishinsky.
"Technically, the clay first adsorbs toxins (heavy metals, free radicals, pesticides), attracting them to its extensive surface area where they adhere like flies to sticky paper; then it absorbs the toxins, taking them in the way a sponge mops up a kitchen counter mess."
After that occurs the clay can be filtered out of the pond via your mechanical filter or vacuum.