Ferromagnetic particles in the putty are strongly attracted to the magnet and very slowly engulf the surface of the magnet. The magnet shown in the picture is a strong neodymium iron boron magnet. It’s a very powerful magnet for its size and could erase magnetic stripes found in credit cards and damage electronics!
The putty looks and feels like regular silly putty, but the difference lies in the fact that it has been infused with millions of micron-sized ferrous particles (most often iron oxide powder). The magnetic putty is not actually magnetic by itself, since the infused particles are made of iron powder.