freewheeler:
Stop confusing yourself with liquid water; A little study of gas laws is necessary.
This is a problem in molecular mass of gas mixtures. Dry air is a gas mixture with a molecular mass of 28.8 (or maybe 28.9). Water vapor (NOT liquid water, and not ice) has a molecular mass of 18.
Thus, the more water vapor you mix in the air, its molecular mass decreases from 28.8. In other words, its density decreases.
And with a less dense working fluid, engines don't develop as much output, and wings don't lift as well.