How does ground mains work?
simulate this circuit &ndash; Schematic created using CircuitLab

Figure 1. A local distribution transformer supplying a house with only one applicance in it - an electric lamp in a metal enclosure, properly earthed.


With reference to Figure 1, we can see that the local transformer isolates our supply from the generating station. Whether the generator is earthed or not is of no interest to us. (The transformer symbol indicates that there is no electrical connection between the primary and secondary sides.)
One side of the transformer is "neutralised" by connecting it to an earth rod driven into the ground. Neutral, as the name implies, means that this conductor is neither positive or negative. In ideal circumstances one could touch this wire without harm. (We'll see later why this isn't recommended.)
Everything in the house is wired between L (live) and N (neutral).
Non double-insulated appliances and fittings have their metal cases earthed (grounded).


Now there are a few things to note about this arrangement:


In normal circumstances all current is supplied on the live wire and returns on the neutral. (Yes, it's alternating but we can still think of it this way.)
In normal circumstances NO CURRENT FLOWS IN THE EARTH WIRING. It just sits there - maybe never being used ever - in case there is a fault.
If the L wire in the lamp falls off the switch and touches the metal enclosure a fault current will flow to earth. Why? Because the case is connected to ground which is connected to the transformer neutral.


If we don't earth the appliances we could have a dangerous condition.







simulate this circuit

Figure 2. An unearthed appliance with an internal fault making the enclosure live.

Now if someone touches the lamp they are in danger of electric shock. This may flow through their body to ground by resistive conduction but since the human body has some capacitance with the Earth at least a small current will flow.







simulate this circuit

Figure 3. An earth fault.

In Figure 3 an internal fault has occurred. 


Because the appliance is properly earthed the voltage on the appliance 
will be low.
If the fault is severe (a good contact between the internal live wire and the case) AND the ground return path to the transformer is adequately low, a high current will flow and the fuse will blow. This will render the circuit safe.
Note that since one wire has been neutralised we don't need to install fuses in it.





  When I studied how AC mains power works, I learned that one of the wires is connected to the ground or a body of water so that it can get back to the power station. 


No. Just to the local transformer.


  The concept baffles me. Every source of information I've come across fails to explain how it works or quickly glosses over it as if it is self explanatory.


I hope the above helps.


  If power can travel through the water or the earth back to the power station, then why aren't we getting vaporized when we walk on the ground near power lines? 



We don't normally send current back through the ground. It's only in fault conditions.
To get vaporised you would need a high voltage between your left foot and your right foot. If we had a massive fault in the house and the earth potential at the earth rod rose to 100 V and it was 100 m back to the transformer then the voltage gradient would be 1 V/m. Take the biggest step you can and you'd have &lt; 2 V between your feet.



  Also, how does an isolation transformer prevent you or your equipment from getting fried? 


It doesn't. It just isolates it from the mains. This is a separate question.


  If I touch both terminals of the secondary, am I going to get fried?


Yes, there is a voltage between the terminals. If it's isolated you could touch either terminal and not get a shock (but remember the body's capacitance and that of the transformer - you could be surprised) but if you touch each terminal with separate hands then a current could flow through your heart and kill you.