I review recent advances in understanding the physical character of the exchange-correlation (xc) potential in time-dependent density functional theory. I show that in an electron gas of slowly varying density the dynamical part of the xc potential is an extremely nonlocal functional of the density. This difficulty can be circumvented by introducing an xc vector potential that is a function of the local current density. The form of this vector potential is entirely specified by symmetry. Its physical effects are analogous to those of the viscous force in the Navier-Stokes equation of classical hydrodynamics. Recent applications of the xc vector potential to the calculation of infrared absorption linewidths in quantum wells are described.