I've read a lot about people cleaning keyboards in the dishwasher. But how does the water damage electronics? Does it cause shorts on the ICs on the internal circuitry or physically get in the IC(which I can't see happening). So what actually happens?
Many electronic assembly lines have a water cleaning machine in them. Basically it runs the PCB through it on a conveyor belt while spraying it with water. One smaller contract manufacturer I visited actually used standard dishwashers to clean PCB's (but had a closed water system, so no bad stuff made it into the sewer). In my lab, we use water soluble flux that must be cleaned with water, as the flux itself is very conductive. I simply rinse the PCB in the sink and dry it.
There are several important things to note when washing a PCB with water:
The PCB should not be powered. This seems obvious, but people often forget about batteries for the real-time-clock and stuff. Sometimes the batteries will survive the washing step, but it's best to not tempt fate.
The PCB should be completely dry before powering it up. This is the tricky one, since there are many small nooks and crannies for water to go into, and it doesn't evaporate quickly in those tight spaces. I'm in Colorado, where the humidity is often less than 30%, and I will either let the PCB drip dry for more than 24 hours or use a heat gun to speed things up. If you're in a more humid climate then extend the drying time accordingly.
Some parts don't survive washing. Speakers, buzzers, and microphones are the big ones. Some switches and buttons don't like being washed either. Of course there are always exceptions.
If your water has a high mineral content then you might want to do a "spot free rinse" using deionized or reverse-osmosis-ized water.
The #1 way water damages the electronics is by shorting things out while the power is on. The #2 way is by corrosion. Interestingly enough, it's not the water that does the damage but all the impurities that are dissolved in the water. Pure water doesn't do much (but look at it wrong and it'll get impurities). Of course, not powering on the device and drying it relatively quickly will prevent both of these problems.
If the device is off and you are just using plain water it's not going to harm the device as long as you dry it off again before turning it on. Dishwashers work quite well for this, but you shouldn't put much soap into it (too much and the residue could stick to the PCB and cause problems.
If you run electronic equipment while it's wet then yes, it will short out. While water itself is not a conductor, any dissolved minerals/salts will make it very conductive. Since there are minerals in every form of tap or natural water it can be very bad for a computer.
That being said I've literally spilled an entire glass of water onto a working motherboard and it continued to work for the next 5 minutes while I saved my work and shut down. Dried it off and there was no damage.
Years ago a friend asked me for a way to slightly illuminate a small river in a miniature diorama. There was almost no space to hide the little circuit (it was a PIC with internal oscillator that handled 3 red leds) and no time to rebuild that diorama part, so with just 3V of supply (to limitate water electrolysis) we simply submerged the circuit in the water reservoir. And as all provisional hacks, it worked for years without problems :-)