What does a Intercooler Do?
A intercooler cools air.  There, is that basic enough!!  Intercoolers are used in forced induction cars (turbocharged, or supercharged) so that the compressed air from the turbocharger (or supercharger) is cooled before it enters the engine.

Turbocharging and Supercharging
There is one reason why people turbocharge or supercharge an engine, more power.  In very basic terms, both turbocharging and supercharging an engine create more power by forcing compressed air into the engine.  More air, means more oxygen, which means more power.  However, it should be noted that it is not the amount of air, per sa, that determines the power, more the density of the air.  The colder the air, the more dense it is.

During the forced induction process the air is heated up.  Not because of the turbo housing is hot (although it is hot, bloody hot!!) but because air is heated when compressed.  Hot air leads to two main problems.  Firstly it is not as dense as cold air, and secondly it can lead to detonation, and that my friends is a expensive explosion.

Thus if the air can be cooled between the turbo or supercharger and the engine it will be denser, colder air that will make more horsepower.

Air Temp Increases
There are several factors that effect the extent to which air will be heated:

1. Boost - the higher the boost, the more the compression the hotter the air.
2. Efficiency of the compressor - the reason why a turbo must be matched to the engine.
3. Heat Sink - engine bays are hot places, and the air can be heated more by heat sink though the plumbing from the turbo to the engine.
4. Ambient temperature - obviously, the hotter the original temp of the air, the hotter it will end up being after compression.

Intercooler Efficiency

There are two main concerns when reviewing the efficiency of an intercooler

1. Temperature Drop - a intercooler rated at 100% efficient would cool the compressed air to ambient temperature.
2. Pressure Drop - a intercooler should be designed so to minimize pressure drop.  A perfect intercooler would have no pressure drop, however this is impossible to obtain in reality.

Intercoolers
There are two different methods of intercooling an engine:-

Air to Air Intercoolers

Air to Air Intercoolers are by far the most common method of intercooling.  They are cheap, reliable, and less complex than their air-to-water brethren.  Air to air intercoolers work by passing the intake charge into a end tank that distributes the air evenly across the core, allowing it to pass down tubes and then back out the other end tank and onto the engine.  The air is passed down the tubes, thus a large contact area, and heat is transferred from the air into the aluminium wall of the tubes.  Outside air is passed through fins that zig zag between the tubes of the intercooler, and thus cool the tubes.  The air passing through the intercooler, cools the tubes down, in turn cooling the intake air down.  The area between the tanks of the intercooler is called the core.

There are two types of cores used in air to air intercoolers: tube and fin or bar and plate.    

A sample of cores from the perspective that you can't see, but very important to what the intake charge see's! 2 are tube/fin the rest are bar/plate.	Tube an d fin design	Bar and Plate design

Tube and fin cores are more common than bar and plate.  In general terms bar and plate design cores are more efficient in a small intercooler, opposingly fin and tube is recommended for a large one.

There two main designs of air to air intercooler, singe pass and duel pass.  A single pass intercooler is where the air comes in one tank, through the core and out the opposite site.  A duel pass intercooler, is when the air come in one side, across the intercooler, turns around and comes back through the tubes and exits the same side as it entered.

A air to air intercooler should be placed where it receives maximum air flow.

Air to Water Intercoolers

For maximum efficiency a air to water intercooler is the only way.  An air to water intercooler can in fact have a better than 100% efficiency rating.

A air to water intercooler is a more complex design than a air to air.  It incorporates a radiator, pump, and the intercooler itself.  Unlike the air to air intercooler that only has one circuit of flow, i.e air, a air to water has two seperate flow cycles, the air and the water.

The air follows basically the same path as with a air to air intercooler, ie. from the turbo, through pipes to the intercooler, through the intercooler and then plumbed through to the intake manifold.

However, there is also a water circuit involved in a air to water intercooler.  The water is pumped from  the radiator (a completely different entity to the normal radiator, with a completely different water supply) up into the intercooler, and then back to the radiator.  A optional ice box may be added between the intercooler and the radiator, where by the water passes through a special built 'esky' like container that chills it before it returns to the radiator.

Air to water intercoolers are placed at the highest point in the engine bay.

The intercooler assembly itself, is in the most basic of definitions, a air to air intercooler encased in sheet metal.  The intake charge passed through like it normally would, however instead of using outside air to pass though the fins, water is used. It is pumped up to the top of the intercooler and then flows down through the finds, pass the tubes and out of the unit.

* Also see - Project Rodeo - for more R&D work on air to water intecoolers
                 - Bar/Plate or Fin/Tube for more info on air to air intercoolers