When water is dropped from planes onto a forest fire, it primarily removes the heat requirement of the fire. Fires require three components to sustain combustion: heat, fuel, and oxygen—often referred to as the fire triangle.
By dropping water on the fire, it cools down the burning materials, reducing their temperature and removing the heat necessary for the combustion process to continue. Additionally, water can partially smother the fire by creating steam, which can displace some of the oxygen around the flames, further inhibiting the fire's ability to sustain itself. However, the primary effect of the water is its ability to absorb heat and lower temperatures.