1. Will significantly help to prevent detonation.

2. Will raise the octane of the gas you are using.

3. By reducing detonation, this will allow you to increase boost or run lower octane.

4. Lowers air intake temperatures which keeps the engine cooler from the inside out.

5. Will literally steam clean the carbon deposits from within the engine.

What is Water Injection:

Water injection systems are predominantly useful in forced induction (turbocharged or supercharged), internal combustion engines. Only in extreme cases such as very high compression ratios, very low octane fuel or too much ignition advance can it benefit a normally aspirated engine. The system has been around for a long time since it was already used in some World War II aircraft engines, which allowed them to produce more power and therefore fly at higher altitudes.

A water injection system works similarly to a fuel injection system only it injects water instead of fuel. Water injection is not to be confused with water spraying on the intercooler's surface, water spraying is much less efficient and far less sophisticated.
A turbocharger essentially compresses the air going into the engine in order to force more air than would be possible with the atmospheric pressure. More air into the engine means automatically more fuel has to be injected in order to maintain the appropriate stoechiometric value of the air/fuel ratio (around 14:1). More air and fuel into the engine leads to more power. However by compressing the inlet air the turbocharger also heats it. Higher air temperatures lead to thinner air and therefore an altered stoechiometric ratio which can lead to a lean mixture and detonation.  Detonation, an effect also known as engine knock or pinging, occurs when the air/fuel mixture ignites prematurely or burns incorrectly. In normal engine operation the flame front travels from the spark plug across the cylinder in a predefined pattern. Peak chamber pressure occurs at around 12 degrees after TDC and the piston is pushed down the bore.

In some cases and for reasons such as a poor mixture, too high engine or inlet temperatures, too low octane fuels, too much ignition advance, too much turbo boost, etc.,  the primary flame front initiated by the spark plug may be followed by a second flame front. The chamber pressure then rises too rapidly for piston movement to relieve it. The pressure and temperature become so great that all the mixture in the chamber explodes in an uncontrolled manner. If the force of that explosion is severe some of  the engine's moving parts (pistons, rods, valves, crank) will be destroyed.
Detonation, in any engine, should always be avoided by either lowering inlet temperatures, using higher octane fuel, retarding ignition (hence lowering engine output), lowering engine blow-by (a situation in which high crankcase pressure sends oil fumes back inside the combustion chamber), running the engine a little richer than at the stoechiometric ratio, lowering the compression ratio and/or boost pressure, ... .
Water injection is used to lower in-cylinder temperatures and burn the air/fuel mixture more efficiently thus helping avoid detonation.

In high pressure turbocharged engines the air/fuel mixture that enters the cylinders can, in some cases, explode prematurely (before the spark plug ignites) due to the extreme engine environment conditions. This situation is extremely destructive and results in severe engine damage (piston piercing). To avoid damaging the engine by detonation or pre-ignition phenomena, water is injected, along with fuel, in the combustion chambers in order to provide a water/air/fuel mixture which not only burns more efficiently and avoids detonation or pre-ignition but also provides additional inlet air cooling and, hence, denser air. The sole functions of water injection is avoiding detonation by lowering air charge/cylinder temperatures along with increasing the effective octain of the air/fuel charge, so the ECU can advance timing and take advantage of the increased boost.

There are mainly three variations of water injection systems. They are dependent of the location of the water injectors. The first technique consists of injecting water at the entrance of the intake manifold. The second injects water at the exit pipe of the intercooler. The third technique injects water at the entry of the intercooler and  is only used in competition vehicles. In this latter variation most of the in-cylinder detonation prevention is done by injecting additional fuel which is then used as coolant (i.e. is not burned) and runs the engine above the stoechiometric ratio (i.e. rich).

Here are some interesting facts:

1. Maximum Torque occurs at a 13.2:1 Air Fuel Ratio.
2. Transitional Fueling and Maximum Boost Air Fuel Ratios are about 12.5:1.
3. Water Injection is most efficient with a 50/50 water alcohol mixture.
4. Methanol is the most common and best alcohol to use if you will be using an alcohol/water mixture.
5. Denatured (will eat your pump in 2 months and is not covered by warranty) alcohol, typically 95%, is cheap and is available in paint, hardware, and Home Depot type stores in gallon containers for about $10.00. Isopropyl alcohol can be used but it is often 30% or more water by content.
6. Water Injection allows ignition timing to be more aggressive.  In other words boost does not automatically mean pulling your timing.
7. Excessive amounts of ignition retard will cause a loss of power and overheating.
8. Water to Fuel ratios should be based on weight and not volume. 
9 . Water weighs 8.33 lb per gallon.
10. Alcohol weighs 6.63 lb per gallon.
11. Air weighs .080645 lb per cubic foot. It takes about 150 cubic feet of air per 100 horsepower. It takes about 12 lb of air per 100 horsepower.
12. Water or Water / Alcohol to Fuel Ratios are between 12.5% to 25%. This means Air to Fluid Ratios are between 11.1:1 and 10.0:1 with water injection, when your fuel system goes into closed loop (ie. when you floor the throttle).
13. Maximum water delivery should be in higher load scenarios, such as when torque is highest.
14. Atomization of the water mixture is directly related to it effectiveness. Finer droplets cool the inlet charge better and with less mass they navigate the inlet plenum easier for more equal water distribution.
15. Don’t flow water through an intercooler.
16. Atomized water, just like fuel , does not like to make turns thus making accurate distribution something to think about. This is why port fuel injection is the norm. Water is a fluid just like your fuel. Multiple nozzles, equally spaced in the plenum, although it complicates things, is a superior design.
17. The introduction of water will allow higher boost pressures to be run without detonation. Higher pressures will increase torque. It’s always about torque.
18. Racing high octane gasoline should be used for all forms of competition and for higher than normal boost levels if possible. Water injection as well as charge cooling (intercooler) should be used with racing gas when used for competition.
19. Fuel Injectors should not be used to deliver the water in a water injection system since they are more susceptible to corrosion.
20. Progressive controllers which vary the voltage to control pump pressure should not be used.  This can cause the pump to stall, meaning it is powered, but not pumping.  Our Vari-Cool controller always gives the pump full voltage.  In the patent for Shurlfo pumps, they specifically address this problem, stating the problems that can occur if supplied less than 12 volts.  If another company claims that varying the voltage is not an issue, ask them to provide the documentation that claims this.
21. Fuel Injection pumps cannot be used for water injection. Water is conductive. Gasoline is not. Water will corrode an efi pump shut in a very short period of time.
22. Water injection has a cooling effect on the engine head, valves, and cylinder. Exhaust temperatures (EGT) can be reduced from 50 to 150 degrees Celsius.
23. The cooling of potential hot spots in the combustion chamber defeats pre-ignition, the most destructive form of uncontrolled or unplanned combustion.
24. Higher static compression ratios will require a higher percentage of water or water / alcohol.
25. No, water does not burn. We are not combusting the hydrogen in the H2O.
26. At around a 13.2:1  air/fuel ratio, exhaust gas temperatures will peak.
27. Ferrari suspended water in their fuel during their 1980’s Formula1 period. We don’t recommend that you try this...although Acetone will mix with water.