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Have a look at a detailed article on Unreal refraction using Pixel Normal Offset. This official guide will help you understand the basics.
In Unreal Engine 4, we now make use of a non-physical model of refraction, Pixel Normal Offset. The built-in code, using the physical model of refraction for Index of Refraction, is based on how light rays refract as they transfer between mediums, which can cause a lot of artifacts as the scene color is being read from off-screen. This can be useful for small objects, like glass jars, where you won’t notice the effect as much, but is problematic for flat surfaces. Pixel Normal Offset enables refraction for these large flat surfaces, like water, where you do not want this constant offset that is reading from off screen so much. It uses the vertex normal as a reference and then computes the refraction offset from how different the per-pixel normal is from the vertex normal, allowing these flat surfaces not to shift.
To enable refraction to use the Pixel Normal Offset mode, select the Main Material Node and use the Details panel to set the Refraction Mode:
Physical vs Non-Physical Model of Refraction
In the comparisons below, the Refraction Modes for the physical model of Index of Refraction and the non-physical model for Pixel Normal Offset demonstrate the differences in how the normal is read in the material.
For additional information about the physical model of refraction and using it with your materials, see Using Refraction.
Refraction Mode: Index of Refraction
Refraction Mode: Pixel Normal Offset
Here you will notice that the image is shifted when using the Index of Refraction mode compared to the Pixel Normal Offset mode where you do not read from off screen so much. Index of Refraction will work without a Normal map plugged into the material, whereas with Pixel Normal Offset, if there is no Normal map you will not get any refraction.
When you add a Normal map to your material, with refraction and a value greater than 1 plugged into your Refraction input, the normal will translate along the surface when using Pixel Normal Offset. However, you will notice that with Index of Refraction, you will still have an offset that reads from off-screen, which is not a desirable effect for these flat surfaces using refraction.
In this example, the refraction amount is adjusted between a value of 1.0, which is no refraction at all, to a value of 2.0, for some refraction along the surface without shifting the image while usingPixel Normal Offset.