From a physical and thermodynamical point of view, there are several mechanisms acting simultaneously, by which water mist extinguishes fire.
1. Cooling effect
Primarily the water mist efficiently cools the fire plume and the fuel surface, extracting a significantly high quantity of heat out of it. This happens thanks to the high latent heat of evaporation (2,442 J/g) of water
2. Inerting effect
The water mist is carried with the air into the source of the fire, where it quickly evaporates due to the high heat. As a result of the enormous increase in the volume of the water droplets as they evaporate (up to 1,700 times), the oxygen at the source of the fire is displaced and the fire is smothered.
3. Absorption of radiant energy
Water mist also absorbs radiant energy as a secondary mechanism and therefore acts as a thermal barrier, preventing surrounding surfaces (or the fuel itself) from being heated by radiation.
Additional positive secondary effects include: gas suppression, burnt gas knock-down, personal protection (as water mist lowers the temperature and eliminates burnt gases faster than any other agent) and cooling of objects