Does water actually damage or only temporarily disable electronics until drying out?
Water can damage electronics in a few ways.

Most people only think of damage due to the conductivity of water. This means that the water will short out the electronics (and this is why water and mains voltages are dangerous.

However, with most lower-voltage electronics, the currents that flow through the water are not that substantial and doesn't do a lot of damage (though it can!).

What is often the cause of damage with electronics exposed to water is corrosion. The water will act as an electrolyte and as such will dissolve and corrode away many of the tiny tracks and pins on components and circuit boards. If this is the case, it is sometimes possible to repair this after the fact by reconnecting the correct parts. 

This is why removing the battery from a phone that has been exposed to water can often save the device. With the source of power removed, no more current can flow through the parts exposed to water and thus the rate of corrosion drops.