Having only been on it once, I'm not sure where the transition(s) occur, but the effect is seamless. I'm guessing that all the water dripping off the subs gets recycled through the floor back into the lagoon, but I'm pretty sure that there's no water at all in many of the scenes. Very clever lighting does the job. Could be that the subs pass through a big car wash blow-dryer during one of the noisier scenes.

How do you do bubbles in a dry environment since most of the scenes have bubbles or transition in or out through a bubble screen.

The subs are always in water but when you go through the show scenes, you are looking through the water outside your porthole and then another piece of glass in front of the scenes themselves. You don't see the building glass because it is so close to you and the seams are integrated so well. So, it's kind of like being in a flume ride but looking out from beneath the water's surface and through a clear wall.

And that's the real Disney magic!