Bearing in mind that all the water in Egypt turned into blood, which water did the magicians use to copy Aharon's act?
Targum Yonasan: They performed their act with water that they obtained from Goshen, where Yisrael lived and which was therefore not affected by the plague.
Hadar Zekenim #1 (on Pasuk 17, citing the B'chor Shor): After the water turned into blood, it turned back into water again. Refer to 7:21:151:1.
Da'as Zekenim #1, Hadar Zekenim 1 #2: They brought water from elsewhere.
Da'as Zekenim #2, Hadar Zekenim #3: They dug for water. 2
Others explain that the Egyptians were able to drink the water that they purchased from Yisrael. 3
Da'as Zekenim and Hadar Zekenim reject this, since it says only later that they dug for water. Perhaps now, only the magicians dug for water, and when people saw that such water was drinkable, all the people did so. PF.
From which Yisrael became extremely wealthy. See also Oznayim la'Torah on Pasuk 27.
What exactly did the magicians do?
Seforno (on Pasuk 18) 1 : They were able to make the water resemble blood in looks only, but not to actually transform it into blood.
Malbim citing Rav Sadya Gaon: Via sleight of hand trickery, they pretended to turn water to blood.
On what excuse did Par'oh base his refusal?
Rashi: Placing Moshe and Aharon on a par with his magicians, who copied Aharon and turned water into blood, 1 he accused them of bringing straw to Ofrayim (a town where straw was to be found in abundance) - seeing that witchcraft was rampant in Egypt.