I may be misleading you, and this is from an awful long time ago, so don't take it as gospel...
But my understanding is that the mixture in the cylinders is burnt, but does not all ignite at the most desirable time (a bit before TDC) and is still burning as it's expelled by the piston rising again.
Thus you have burning gases instead of merely exhaust slung out the exhaust manifold, thus resulting in both decrease of power available and an increase in temperature at the EGT probe.