Like computers and other electronics, the iPhone is extremely sensitive to water. The primary reason that water can cause failure in electronic devices is that water is an extremely effective conductor of electricity.
The circuit boards within electronic devices are constantly regulating electron flow when the device is turned on. When water is introduced to that environment, the circuit board loses its ability to control that flow because the water provides a medium in which the electrons can flow freely. This results in short circuits. Water also causes long-term damage in the form of corrosion to certain metals and plastics.
The iPhone contains a mechanism that can tell users and technicians that the device has been exposed to a dangerous level of moisture. This mechanism is called the Liquid Contact Indicator and is located within the headphone jack.
This is a strategic location in which moisture will not collect in sufficient quantity to trip the indicator unless the phone is submerged. When the indicator is activated, it will change color from white to red.
Another way to identify water damage is to look for signs of moisture beneath the iPhone's screen and within its USB port. If you suspect water damage, turn off the iPhone immediately.