I started using that when my baby was 4 months old. I used red rice, with just a handful, and put it into a pot of water, and bring it to boil. After a while, the water will turn a bit brownish. Another way of making rice water is that when you are cooking rice, put extra water into the rice cooker, and when it comes to boil, just take the boiling rice water out and you can use it right away.
When I mix the formula, I first use some hot water, then I add some of these rice water to make up the total amount.
Since I did not use any Chinese medicine (hoi nai cha) for my baby, rice water will actually make the baby less heaty, and they will go to toilet better. Another benefit is that, especially for the last meal before bed, rice water will fill the baby's stomach and make them sleep longer as they won't get hungry that fast.
And of course, red rice have more minerals, so that's why I use that. But basically, any rice will do.