This i s my opinion on the matter:
Water curing is a method to get rid of a lot of bug food in wood and to allow better drying when you do get it out of the water.
Basically, the soluble starch and sugars (and a lot of other water-soluble organic molecules) in the wood matrix slowly dissolve into the water (like tea from a tea bag and a cube of sugar in coffee), part of it is also decayed by bacterial activity. Also, the cell wall lining becomes degraded, as a result of which cells become more permeable to water. Hence, they hydrate and dehydrate faster (you get to equilibrium moisture more rapidly). This means that the wood doesn't check as badly when it is finally air-dried, as the inside of the wood will dry nearly as fast as the outside. Checking results from very uneven drying of wood from the outside to the inside.
In addition, I guess that water-cured logs are more resistant to fungal attack or insect boring, as there's just less food for the critters left to munch on (because it's dissolved into the water), and they won't colonize the logs as easily.
If you leave the wood too long under water, the cellulose itself will slowly decay spontaneously as well (requiring many years, not talking about weeks to months)
See
http://nautarch.tamu.edu/CRL/conservationmanual/File6.htm and
http://maliposamusic.com/Stradwoodcuring.htm for more info.