The morning sun can sometimes play tricks on the eyes, and in the context of war, a simple optical illusion can change the course of an entire battle. The timing of this early morning event is understood in two ways [מלבי״ם]. Some explain that the soldiers woke up the day after the previous events took place, while others suggest it happened immediately that very same morning, exactly when the daily morning offering was brought. Miraculously, water suddenly began to flow through a completely dry riverbed, arriving solely through the word of God [מצודת דוד].
The primary approach among commentators is that the morning sun, which naturally casts a reddish glow at dawn, reflected off the newly formed streams. This reflection gave the water the deep, red appearance of blood [רש״י, מצודת דוד, ביאור שטיינזלץ]. The Moabite soldiers observed this sight from a distance. Because they had never seen water flow in that dry valley before, they immediately assumed the red liquid pooling before them was actual blood [רש״י].
This assumption led the Moabites to a fatal conclusion. They believed the three allied kings of Israel, Judah, and Edom had turned on one another and slaughtered their own forces. Convinced that the enemy had destroyed itself, the Moabites felt there was no longer any need to fight and that their only remaining task was to collect the leftover spoils of war. Driven by this false confidence, they advanced toward the camp completely unorganized and without their proper weapons. This critical lack of preparation left them entirely exposed, allowing the Israelites to easily rise from their camp and strike them down [אברבנאל].