Water does a couple things. It cools the charge which makes it possible to up the power produced by the engine. This means you can increase your boost or compression before detonation. Second it slows the flame front speed, improving combustion completion. Third, water itselve expands going from liquid to a gas which is (where the cooling comes from). Aircraft have been using water injection for years. The Connies were known for it with the 3350's in the 40's. The 3350 were high performance radials which were more fickle then radials previous. It was how they got huge power out of them and still are with the 3350 and other engines at the air races.
Gary
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