We present a detailed analysis of the mixing process in an associating system, the water-tert-butanol (2-methyl-2-propanol) mixture. Using molecular dynamics simulations, together with neutron, X-ray diffraction experiments, and pulsed gradient spin-echo NMR, we study the local structure and dynamic properties over the full concentration range, and thereby provide quantitative data that reveal relationships between local structure and macroscopic behavior. For an alcohol-rich mixture, diffraction patterns from both neutron and X-ray experiments exhibit a peak at low wavelength vector (q approximate to 0.7 angstrom(-1)) characteristic of supermolecular structures. On increasing the water content, this ``prepeak'' progressively flattens and shifts to low wave vector. We identify hydrogen bonds in the system as the driving force for the specific organization that appears in mixtures, and provide an analysis of the variation of the cluster size distribution with composition. We find that the sizes of local hydrogen-bonded clusters observed in alcohol-rich mixtures become larger as the mole fraction, x(w), of water is increased; a nanophase separation is seen for x(w) in the range 0.6-0.7. This corresponds to several changes in some macroscopic properties of the liquid mixture. Thus, we propose a microscopic description of the effect of water addition in alcohol, which is in agreement with both neutron diffraction pattern and mobility of water and alcohol species. In summary we present a full and comprehensive description of miscibility at its limit in an associated system.