I believe you refer to an HHO system. It works by electrolysis. There is a lot of controversy surrounding this topic. Yes you can make an HHO generator that generates sufficient amounts of HHO to run a vehicle. However typically it will take more power from the engine to generate the HHO than the HHO will give back. In other words proof of concept works but in real world applications it will only work if you can somehow generate the HHO from a different power source.
Here are a few links about it on ecomodder...
http://ecomodder.com/forum/showthrea...ork-16562.html
http://ecomodder.com/forum/showthrea...gly-19966.html
http://ecomodder.com/forum/showthrea...hho-22121.html
http://ecomodder.com/forum/showthrea...work-3286.html
Here is few articles explaining why a vehicle powered HHO generator doesn't add up...
Water Car Test - HHO Shows Why You Can't Run Cars on Water - Popular Mechanics
Scientific proof debunking the "run your car on water" scams