Water can put out fire not because of some special reaction but just because it stops the oxygen needed for burning from reaching the fire.
To answer your second question, the atoms of the elements when combined become less reactive. On their own, the atoms have free space and they are looking for something to combine with (this can cause dangerous reactions with some other elements). When together, they occupy each other’s ‘free spots’ so they have ‘no desire’ to react with (join with) other atoms.
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