An intercooler is what is called a cross-flow heat exchanger, as the cooling fluid removing the heat (the air) is moving at ninety degrees to the warm fluid (the air, water or oil). The interaction of these fluids is accomplished by the use of tubes and fins within the intercooler. Hollow tubes travel along the length of the heat exchanger and are used as channels for the warm fluid to make its way from the inlet, through the intercooler and then to the outlet once it is sufficiently cooled.
The real cooling happens through the use of the fins however, which cover the surface area of the intercooler. Aligned in a corrugated fashion, they allow for the surface area of the heat exchanger to be maximised so that heat can be dissipated to the surroundings as efficiently as possible.
Put simply, intercoolers take warm air entering your engine and make it colder through heat exchange. The rules of thermodynamics state that the larger the temperature difference between the inlet air through the manifold and the temperature of combustion within the cylinder, the more energy is converted through the combustion. So a colder intake means a bigger temperature difference and therefore more power.
The most effective use of an intercooler happens to be when installed on a turbocharged or supercharged vehicle, where the inlet air will be made too warm by the turbocharger or supercharger spooling up if left otherwise. Using yet more thermodynamic principles, if a fluid is increased in pressure, the temperature of that fluid also increases. Therefore, the boost pressure of a turbocharger suddenly increases the inlet air pressure and temperature which, if not cooled, will lead to a lack of engine efficiency.
To combat this, an intercooler is placed between the turbocharger and the inlet to the engine so that the air can be sufficiently cooled in time for it to enter the cylinders and interact with the incoming fuel. Without an intercooler performing this job, the warm air from something like a supercharger would create a breeding ground for pre-ignition. This means that fuel is combusted too early in the engine cycle, reducing the engine's efficiency and power along with possibly causing damage.
