Dry ice is frozen carbon dioxide. When you drop pieces of dry ice into water, you get a wicked-cool combination of carbon dioxide gas and water vapor that bubbles out of the water. The creation of gas inside the two liter bottle quickly becomes too much volume for the two liter bottle to contain and the dry ice smoke flows over. By capping the two liter bottle with a funnel, the smoke builds pressure as it is forced into a more confined area. This pressure pushes the smoke through the tube, creating a flow of smoke that fills the bubbles.
Steve Spangler combined the idea of filling bubbles with dry ice fog with his Bouncing Bubble activity to create a Bouncing Boo Bubble. While blowing bubbles indoors, you might have noticed the occasional bubble that fell to the carpet but didn’t pop. Regular bubbles burst when they come in contact with just about anything. Why? A bubble’s worst enemies are oil and dirt. Boo Bubbles will bounce off of a surface if it is free of oil or dirt particles that would normally break down the soap film. They break when they hit the ground, but they don't break if they land on a softer fabric like gloves or a towel.