They produce steam. You can add an inhalent if you like, although i have heard some people dont advise it under 12 months, due to the sensitivity of baby's nasal membranes. (I use one though, just a half dose)
The steam increases the humidity in the room, making the air more moist i guess you could say. This apparently helps relive congestion, and i find it helps her cough.

There are some studies that say they are ineffective, but as a child i often had croup and i found it helped, so that's why i use one!