A liquid cooling system works in a similar fashion to the cooling system on your car. There's a radiator that exchanges heat collected from the liquid into the air across aluminum fins using a fan or two. There are tubes that carry the liquid through a heat collector that's attached to your CPU, Graphics cards, etc. and a pump that operates to move the liquid. Most systems are self-contained and use non-conductive fluid so if it spills your computer is less likely to short circuit. You can even get fluid tanks to really add to the custom look of your machine. There's even florescent fluid that glows in the dark! Most of these systems run very quiet and are more effective at cooling then just a heat sink and fan.