Mostly the cooking process. When you cook in oil, what you are doing is heating the water in the item until it becomes steam, and boils off into the oil. Incidentally, if your oil isn't hot enough, or you fry something too long, you'll run out of water in the food's surface, it will no longer produce enough steam to push the oil out, and your food will become greasy, which is why you must fry with high temperatures, and fry in small batches, and for only as long as necessary to make it GB'n'D (golden, brown, and delicious).

Anyway, when people say, 'oil and water don't mix', thats a lie, its just that they don't mix very well. Some water will remain in the oil at all times, from the atmosphere, or from cooking. Particularly cooking frozen things. The water can also be entangled in flour or starch particles that are in suspension as well. Good filtration is necessary for good dewatering.

You can use heat to dewater, but its sort of a kludge, and is very wasteful of energy. Its better to settle for a long time, decant the good stuff on top, filter well, and use. If you are dewatering biodiesel, you can warm it and then agitate it while vented to the atmosphere, which will convince the water to evaporate instead of staying in suspension.

Water is bad for making biodiesel because it encourages the saponification reaction (soap making) instead of the transesterification reaction (making biodiesel), so it is important to have low-water oil, and low-water reagents. If you are burning WVO then water is bad because it will combine with free fatty acids in the oil to form acids, which can degrade engine components. Additionally, it can turn into steam inside your injection nozzles (causing something like cavitation), freeze in the bottom of your tank (causing ruptures), encourage fungal growth (yuck), or any number of bad things.

Hope that helps.

peace,
sam

__________________
"That f***in' biodiesel is makin' me hungry."

1982 300TD Astral Silver w/ 250k (BIO BNZ)
2001 Aprilia SR50 Corsa Red w/ 5.5k (>100 MPG)