Basically the nozzle is initially being dipped into an empty tank which is full of air. When filled, the nozzle begins to be surrounded by liquid, which rushes into a small hole they intentionally put in the nozzle. After a short spell of black magic physicsry, the change in energy corresponding to fuel being sucked in to replace air is partially redirected to shut off the nozzle’s fuel line.
As mentioned by others, there are many readings and entertaining youtube videos on the venturi effect that would explain that black magic physicsry, but that would require a lot of words or maybe a ELI10
Up inside the handle there’s a venturi nozzle (a smooth restriction in the tube) that causes a low pressure spot in the fuel line. That venturi is connected by a small tube to a hole near the end of the nozzle. The hole is on the side of the nozzle, not the big hole that the fuel comes out of. While you’re pumping fuel the venturi pulls air into that small hole.
When the tank gets full enough that the fuel level comes up to the end of the nozzle, fuel starts to get sucked into that little hole. Fuel is way denser than air. This causes a pressure change inside the handle that actuates a spring-loaded mechanism to shut off the valve inside.
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