What causes the display on my iMac to look like this?

How old is this iMac?

Overheating can cause the GPU and other components to act up and prematuraly fail.

The iMac needs at least 2" of clear space along the bottom to ensure proper cooling.

Beside removing the items that you have shoved under the iMac. You should shutdown, unplug and check the bottom air intake grill and the air intake behind the stand to make sure they are free from dust. If the air intakes are clogged with dust, then you need to vacuum out the dust. Vacuum do not blow air into those areas, blowing will just force the dust deeper into the iMac and plug up the heat sink, which will make the problem worse.

Simple, because it has not failed completely, it's in the process. It is kind of like a car engine, it may be knocking and making terrible noises from time to time but it's still running. At least it is until it's not! Handle the problem before you are left completely dead. BACKUP the computer today if you haven't already, using Time Machine!!!

Usually a failed GPU.

periodic defect maybe it often starts by with occasional and moves toward being permenant or even refuse to display anything at all.