When the bird is manufactured, most of the air is removed from the inside. The gas that remains is largely the vapor from the red liquid, which vaporizes very easily. When the fuzzy coating on the bird's head gets wet, water evaporates and cools the vapor inside the bird's head. This condenses the vapor back to liquid and reduces the pressure in the bird's head.
Since the pressure of the vapor in the bird's body is now higher than the pressure in its head, liquid is forced from the bottom up the tube toward the head. As the liquid moves up the tube, the center of gravity of the bird is raised, and the bird begins to tip around its fulcrum. When the bird finally dips into the water, a clear passage is opened between the head and the body, allowing the pressures to equalize and the liquid to fall back down to the body. The bird returns to the upright position and the whole process repeats.
Each time the bird's beak dips into the water, the fuzzy material absorbs a little water to replace any that has evaporated. This prevents the bird's head from drying out. The bird will continue its cycle until the head dries out and evaporation can no longer cool it.
In summary, the steps in the cycle are as follows:
The bird's head dips and gets wet.
Water evaporates from the fuzzy head.
The vapor in the bird's head condenses into liquid.
Pressure in the bird's head is reduced because the liquid takes up less space than the vapor.
Liquid moves up the tube into the low-pressure area in the head; the cycle repeats.