- Because water at sea-level atmospheric pressure expands 1600 times when heated to steam, this would produce an unbelievable amount of extra power when this happens inside the cylinders of the engine!
- Some WWII fighter planes used water injection as a means of greatly increasing power during dogfights, by way of a "battle" setting beyond full throttle; but this also greatly decreased engine life.
In the second assertion, the poster was simply mistaken. Water injection was indeed used in some WWII aircraft, but not in the manner he assumed: what he described was in fact nitrous oxide injection, which is very different from water injection.
Look, I'm not saying that it is not possible for water to be used in some manner to improve efficiency in an internal combustion engine. It can be beneficial within certain limited parameters. I'm not even saying that there is no possible way an onboard electrolysis plant could increase efficiency by supporting a more complete combustion of the main fuel (although I would need to see proof). What I am saying is that anyone who does accomplish anything like that would back it up with hard science, not smoke and mirrors, diversions and a promise to tell more if you will just send them $300 to help them hide a little longer from oil company execs who wish to kill them.
With that said, and understanding that water does not spontaneously break down under heat and pressure into hydrogen and oxygen (the reverse, in fact), here is the real deal on water injection:
Water injection, also known as anti-detonant injection, is a method
for cooling the combustion chambers of engines by adding water to the
incoming fuel-air mixture, allowing for greater compression ratios and
largely eliminating the problem of engine knocking (detonation). This
effectively increases the octane rating of the fuel, meaning that
performance gains can be obtained when used in conjunction with a
supercharger or turbocharger, altered spark ignition timing, and other
Composition of fluid
Many water injection systems use a mixture of water and alcohol
(approximately 50/50), with trace amounts of water-soluble oil. The
water provides the primary cooling effect due to its great density and
high heat absorption properties. The alcohol is combustible, and also
serves as an antifreeze for the water. The purpose of the oil is to
prevent corrosion of water injection and fuel system components. 
Because the alcohol mixed into the injection solution is often
methanol (CH3OH), the system is known as methanol-water injection, or
MW50. In the United States, the system is commonly referred to as
anti-detonant injection, or ADI.
In a piston engine, the initial injection of water cools the fuel-air
mixture somewhat, which increases its density and hence the amount of
mixture that enters the cylinder. But the greater effect comes later
during combustion when the water takes in significant amounts of heat
energy as it converts from liquid to gas (steam). This increases
piston pressure (torque), reduces peak temperature and resultant NOx
formation, and reduces the amount of heat energy absorbed into the
cylinder walls. The alcohol in the mixture burns, but at a much slower
rate than gasoline. The net result is that the combustion process
happens slower, preventing the destructive supersonic shockwave
characteristic of detonation.
When used in a turbine engine, the effects are similar, except that
preventing detonation is not the primary goal. Water is normally
injected either at the compressor inlet or in the diffuser just before
the combustion chambers. Adding water increases the mass being
accelerated out of the engine, increasing thrust, but it also serves
to cool the turbines. Since temperature is normally the limiting
factor in turbine engine performance at low altitudes, the cooling
effect allows the engines to be run at a higher RPM with more fuel
injected and more thrust created without overheating. The drawback of
the system is that injecting water quenches the flame in the
combustion chambers somewhat, as there is no way to cool the engine
parts without cooling the flame accidentally. This leads to unburned
fuel out the exhaust and a characteristic trail of black smoke.
Fuel economy can be improved with water injection, although the effect
on most engines with no other modification, like leaning out the
mixture, appears to be rather limited or even negligible in some cases.
Some degree of control over the water injection is important. It needs
to be injected only when the engine is heavily loaded and the throttle
is wide open. Otherwise injecting water may simply drown the engine
and cause it to quit.
Use in aircraft
Water injection has been used in both reciprocating and turbine
Piston engines in military aircraft utilized water injection
technology prior to World War II in order to increase takeoff power.
This was used so that heavily-laden fighters could take off from
shorter runways, climb faster, and quickly reach high altitudes to
intercept enemy bomber formations.
As a general rule, the fuel mixture is set at full rich on an aircraft
engine when running it at a high power settings (such as during
takeoff). The extra fuel does not burn; its only purpose is to
evaporate to absorb heat. This uses up more fuel, and it also
decreases the efficiency of the combustion process. By using water
injection, the cooling effect of the water allows the fuel mixture to
be run leaner at its best-power setting. Many military aircraft
engines of the 1940s utilized a pressure carburetor, a type of fuel
metering system similar to a throttle body injection system. In a
water-injected engine, the pressure carburetor features a mechanical
derichment valve which makes the system nearly automatic. When the
pilot turns on the water injection pump, water pressure moves the
derichment valve to restrict fuel flow to lean the mixture while at
the same time mixing the water/methanol fluid in to the system. When
the system runs out of fluid the derichment valve shuts and cuts off
the water injection system, while enrichening the fuel mixture to
provide a cooling quench to prevent sudden detonation.
Due to the cooling effect of the water, aircraft engines can run at
much higher manifold pressures without overheating, creating more
power. This is the primary advantage of a water injection system when
used on an aircraft engine.
The extra weight and complexity added by a water injection system was
considered worthwhile for military purposes, while it is usually not
considered worthwhile for civil use. The one exception is racing
aircraft, which are focused on making a tremendous amount of power for
a short time; in this case the disadvantages of a water injection
system are less important.
The use of water injection in turbine engines has been limited, again,
mostly to military aircraft. Many pictures are available of Boeing
B-52 takeoffs which clearly show the black smoke emitted by turbine
engines running with water injection. For early B-52s, water injection
was seen as a vital part of take-off procedures. For later versions of
the B-52 as well as later turbine-powered bombers, the solution to the
problem of taking off heavily loaded from short runways was simply to
build larger engines.
Use in automobiles
A limited number of road vehicles with large-displacement engines from
manufacturers such as Chrysler have included water injection. Saab
offered water injection for the Saab 99 Turbo. With the introduction
of the intercooler the interest in water injection disappeared, but
today, water injection is also of interest because it can potentially
decrease nitrogen oxide (NOx) emissions in exhaust. The most common
use of water injection today is vehicles with aftermarket forced
induction systems such as turbochargers or superchargers, particularly
those used for drag racing and illegal street racing.
End Wikipedia article.
I think this adequately explains the purpose of water injection in a
spark-ignition piston engine. In a nutshell, it forestalls detonation,
in the same way that higher octane forestalls detonation. It reduces
efficiency, but allows (does not create, just allows) higher
efficiency sufficient to overcome its own efficiency loss, by allowing
greater cylinder pressure. That, not expansion, is its contribution to
a spark-ignition engine.
Some WWII fighters used nitrous oxide injection for extra power during
dogfights. Nitrous oxide, N2O, is an oxidizer which supports the
combustion of additional fuel, in the same way that turbocharging does
except that it does it by raising the oxygen content of the intake
charge rather than packing in a larger air charge. Pure oxygen would
do the same, but at greater risk of burning a hole in a piston.
N2O injection does indeed greatly reduce the life of the engine,
especially if fuel flow cannot keep up with demand.
I would need to see proof, rather than vague references to a totally
different engine technology (spark ignition), before I would be
convinced that water injection has any advantages whatsoever for a
compression ignition engine. After all, boiled down (no pun intended)
to its essence, the advantage of water injection in a spark-ignition
engine is that it prevents compression ignition.
All text in this post is available under the terms of the GNU Free Documentation License