The part of the unit which you turn is the top end of a screw which goes down into the casing of the tap.
At the bottom end of this screw is a rubber or leather washer which presses down on to the end of the water pipe, preventing the water from coming any further.
When you turn the unit on, the screw rises, lifting the washer with it and allowing the water to gush up from the pipe and run out through the spout.
When you turn off the tap, you are screwing the washer down again on to the pipe and cutting off the flow of water.
If there’s a leak, it could be one of several problems:
Faucets and globe valves, the type commonly used in home water systems, are very similar in construction, and the repair instructions given below apply to both. Your faucet or valves may differ somewhat in general design from the one shown here because both faucets and valves come in a wide variety of styles.