Explain volume contraction in mixtures of alcohol and water
Liquid water can be thought of as having an average configuration that tends to be an open, almost crystalline structure, somewhat like that for hexagonal ice crystals $\mathrm{^{[1,2,3]}}$.  This structure has been confirmed by both x-ray and neutron diffraction experiments.  Below is a depiction of the hexagonal structure of ice for reference:  


Source: Boundless. “The Structure and Properties of Water.” Boundless Chemistry Boundless, 26 May. 2016. Retrieved 06 Feb. 2017 from boundless.com  

This phenomenon of the ice-like structure of liquid water is also illustrated in the observation that at temperatures below $\pu{4^oC}$, the density of water decreases with decreasing temperature as it becomes more ice-like prior to actual solid crystalline ice formation.  

So, if we envision this average crystal-like configuration for liquid water, then two effects come into play regarding the volume contraction observed when water is mixed with ethanol.  

Firstly, some fraction of the hydrocarbon tails of the ethanol molecules is able to fit within this lattice, filling some of the voids within this water structure.  

Secondly, the hydroxyl moiety of ethanol engages in hydrogen bonding with water.  As ethanol only has a single hydrogen bond donor, however, the crystal-like structure of the liquid water cannot be fully maintained, and thus it somewhat collapses.  

Also, please take a look at these answers regarding the general concept of volume contraction of liquid mixtures, not specific to the case of ethanol and water.

1 http://www.diss.fu-berlin.de/diss/servlets/MCRFileNodeServlet/FUDISS_derivate_000000003174/2_Chap1.pdf;hosts=
2 http://crystal.med.upenn.edu/sharp-lab-pdfs/sharp_EncLifeSci.pdf
3 "Water structure and changes in thermal stability of the system poly(ethylene oxide)–water", J. Chem. Soc., Faraday Trans. 1, 1981,77, 2053-2077