As others have said, water conducts electricity (technically ions in water conduct electricity, water itself isn’t very good at that) so if you allow a “shortcut” on a circuit board (like across the battery) then the rest of the circuit won’t get the right power it expects. Since modern electronics use fast and very specific signals, this screws up the whole thing.
On waterproofing, the goal is to prevent water from getting in, but the “how” is actually a bit more interesting. Usually you try to create a seal by compressing rubber, glue or another polymer to fill the cracks on a seal.
This doesn’t work for everything though. That also obstructs airflow. What’s the problem with that? Well sound travels through air, and if there’s no airpath, then your microphone and speakers would sound very muffled by the seal. For those seals, phone manufacturers use a special hydrophobic (means it doesn’t like water) mesh that allows openings, but the surface tension of water will not allow it to get through without time and pressure (i.e. if you dropped it into a pool and left it there). Switches and buttons have their own ways of waterproofing allowing them to move while maintaining a seal.
When you see “IP67” that’s the “ingress protection” rating, that means it passed a very specific test. The first number is for dust ingress (with 6 being effectively no dust allowed in) and 7 denoting a 30 minute test at 1m deep in water with no visible drops inside. That’s also on a new device and doesn’t take into account rubber degradation over time.
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