Final answer:
In the demonstration, the blue liquid and snow-like crystals in the cold balloon are likely water and hydrated copper sulfate, respectively. These undergo physical state changes upon warming; no new substance is formed. Anhydrous CoCl2, by contrast, undergoes a chemical change when hydrating.
Step-by-step explanation:
In the physics classroom demonstration, the blue liquid is likely to be distilled water with a trace of a compound like copper sulfate (CuSO4) which gives it its color. When the balloon is cooled in liquid nitrogen, water condenses and freezes, and if present, the hydrated form of copper sulfate could also freeze into snow-like crystals. Upon warming, the state changes occur: the solid water melts and then boils, and the hydrate warms up, losing its water and changing from blue to white. These physical changes do not signify the creation of a new substance as there's no chemical reaction occurring. However, the conversion of anhydrous CoCl2 to its hydrated form as it absorbs moisture from the air is a chemical change which is characterized by the production of a pink-colored complex with water, indicating a new substance formation, and this complex may have unpaired electrons based on its molecular structure.