Yes, they CAN be underwater and not underwater at the same time. It's like Schrodinger's cat.
http://www.phobe.com/s_cat/s_cat.html
Basically, they're going along on a timeline. Suddenly, something happens (the bomb explodes) and the timeline splits in two. There are two things happening at the very same time, here's an image to show what I mean: (and it's stolen from wiki, just to put that out there

)
So it shows the timeline splitting in two - on one timeline, the cat is alive. On the other timeline, the cat is dead. Both are happening at the same time, but the two timelines can't interact with each other.
There are clues that show you how that the timeline split - Jack had neck on his blood in the bathroom on the airplane (blood from the island), Jack was comforting Rose and then after the timeline split Rose was the one comforting Jack.
That's why they're "flash-sideways", because they're happening at the exact same time, just in different timelines or universes or whatever.