Gas condensing water heaters work much like regular gas water heaters: a large, insulated tank of water is heated by a gas burner. But an enhancement significantly increases efficiency and performance.
Instead of venting the combustion gases directly outside, those gases are captured and utilized to heat the water even more.
A standard gas storage water heater is like a water tank sitting atop of a gas fireplace with the chimney running straight up through the middle, exiting at the top. A gas condensing water heater has its "chimney" or flue designed with greater surface area. The heat and combustion gases have much farther to travel before they exit the water tank, so more heat is transferred to the water in the tank.