The cost reduction applies only to generic mana in the total cost of blue spells you cast.

If an opponent is instructed to put a card into their graveyard without using the word "mill," The Water Crystal's second ability doesn't apply.

In the rare case where you control two of The Water Crystal, each opponent mills eight more cards than originally instructed. If you control three, your opponents mill twelve more, and so on.

To determine the total cost of a spell, start with the mana cost or alternative cost you're paying (such as a flashback cost), add any cost increases (such as kicker costs), then apply any cost reductions (such as that of The Water Crystal's first ability). The mana value of the spell is determined by only its mana cost, no matter what the total cost to cast that spell was.

Some older cards have received errata to instruct a player to mill cards rather than to put the top cards of their library into their graveyard. Use the Oracle™ card reference at Gatherer.Wizards.com to determine whether a specific card has received such errata. As a rule of thumb, if an effect instructs a player to look at or reveal a card before it's put into its owner's graveyard, it's unlikely to have received errata.