According to Wikipedia,
“A water pipe percolator is a small additional sub chamber within the shaft of a water pipe that provides in-line smoke-water interaction via heat exchange and dissolution. Percolators come in different forms, such as dome, pedestal, tree and the more recent double helix. Depending upon the form of the percolator, it may or may not be diffused. However, the primary purpose of the percolator is to act as an extra chamber to filter smoke through water.”
How and why?
“A percolator works by utilizing a pressure differential between its bottom and top in/outlets. Reduced pressure at the outlet end is usually provided by the user’s lungs. The fluid at the inlet (i.e.: a smoke, vapor, and air mixture) is directed to the bottom of a column of water, where the pressure differential causes the inlet fluid to pass though the water in small pockets (liquid bubbles), and then rise to the outlet. In short, diffusers make smoke cooler, and rise evenly through the pipe, due to the water bubbles hitting the surface simultaneously.”