In this chapter, Moses and Aaron confront Pharaoh again and begin releasing the plagues on Egypt.
Verses 1 through 7 continue with the storyline recap that we saw in chapter 6. Verse 1 here is almost the same as Exodus 4:16 and the rest is also similar to passages we have already read.
After the recap, we see Moses visit Pharaoh again and this time, instead of just speaking to Pharaoh, Moses and Aaron are commanded to begin using miracles. The first one, throwing down Aaron's staff and having it turn into a snake, was one of the miracles given to Moses to show the elders of Israel. To paraphrase, it says, "When Pharaoh asks you to perform a miracle" that they are to do these things. So before Pharaoh was rejecting the identity of the LORD, but now he is challenging the power or authority of the LORD.
There are several patterns that we see through the next couple chapters as the plagues unfold. I already said that the main dynamic here is a power struggle between God and Pharaoh. What we will see is that there is an additional struggle between Moses/Aaron and Pharaoh's court magicians. We see this as the court magicians attempt to reproduce the miracles of Moses sparking a game of one-upmanship, with Moses releasing more and more powerful miracles and the magicians attempting to reproduce these miracles. Every time that the magicians can reproduce a miracle, it is a sign that their power matches the power of Moses, whom they treat as if he were a magician rival.
The first miracle, turning his staff into a snake, is in effect a non-violent warning. It is a miracle, but one that has no repercussions for Pharaoh or the Egyptian people.
The second miracle, also in this chapter, is turning the waters of the Nile into blood. A secondary effect is that all of the blood in Egypt's pots and pans and rivers and pools was also turned into blood. At first glance, you would think this would cause widespread deaths due to dehydration (while it is possible to drink blood, the salt content would dehydrate you, having the same effect as sea water). But then it appears that the people were able to dig around the banks of the Nile and get fresh water, so it appears that the sand and dirt was somehow filtering out the water to make it clean, or perhaps the groundwater was not turned into blood? The text doesn't really say, but for whatever reason, this water was fresh and this prevents the plague from devastating Egypt.
This plague has a primary effect of serving as a warning to the Egyptians and Pharaoh and a secondary effect of damaging the Egyptian economy. The blood is possibly a reference to the Israelite blood that was spilled by the Egyptians, and a warning of the future devastation of Egypt if they do not release the Israelites from slavery.
You can view this plague, and the ones to follow, as some sort of divine spectacle, whose primary aim is to impress and intimidate the Egyptians and Pharaoh into submission. This is only part of the purpose by my reckoning, the other part is to economically destroy Egypt, but we will discover that it has a further role of "glorifying the LORD" in a few ways: it reveals his nature and increases his renown across the ancient world that the Israelites traversed.
Turning the Nile to blood attacks the Egyptian economy at its very heart. The Nile is the source of wealth to Egypt by supporting Egyptian farming through both irrigation and enrichment (as the Nile floods, it covers the floodplains with a layer of silt which fertilizes the land for the next year's crop). It also would have been an abundant source of fish, as the text notes. So turning the Nile to blood would both kill the fish and hamper the Nile-based farming system. However, verse 25 implies that the Nile was turned to blood for only 7 days, so the impact on farming would have been minimal. The loss of fish would be moderately severe and forcing the people to dig for water would have been moderately inconvenient but non-fatal. It makes the Egyptians' lives harder, but not tremendously so.
This plague, like all the others, is also designed to reveal the identity of the LORD. To wit, verse 17 says "By this you shall know that I am the LORD". Remember that "LORD" here is Hebrew YHWH, and not actually the Hebrew for Lord (which is adonai or in some places baal). So this verse is not directly saying that Pharaoh would know that the Hebrew God is his lord, but it is definitely implying it, or in my terms, it is establishing the identity of the LORD (YHWH) as God of the world. That is the purpose of the plagues, to establish the supremacy of the LORD over the physical creation.
In the same spirit, my readers should look at what *sphere of creation* the plagues strike at. As we saw in Genesis 1, the bible views creation as being divided primarily into four different physical realms populated by (depending on how you count) 4 to 7 different types of beings. The three realms are the heavens, the sky, the sea and the earth. Respectively, the types of beings are the stars ("the lights"), birds, the fish and the: crawling things (bugs, etc), livestock and animals, "beasts of the earth" (whatever that means), vegetation, and mankind. The plagues, then, successively target different spheres to demonstrate the completeness of the LORD's dominion over all creation. The plague of blood strikes at the waters and fish of Egypt, both stripping Egypt of these natural resources and also demonstrating God's dominion over the same. It harms the Egyptians but does not kill them and it leaves room for further escalation as the plagues continue, until Pharaoh releases the Israelites.
We see the magicians attempt to reproduce the plague of blood, and they succeed. This emboldens Pharaoh to continue resisting and "harden his heart".