Composition
Just like solvent-based finishes, the water-based versions are composed of resins, solvents, and additives. The specific composition of a given water-based product determines its clarity, warmth and colour, as well as its grain raising and flow-out properties.
Acrylics and urethanes are the two primary resins used in water-based finishes. Both provide good clarity, gloss, adhesion and rubbing qualities, and most are non-yellowing. These resins can cure either through a reactive or evaporative process. The reactive curing acrylics and urethanes are sometimes referred to as “self cross-linking” and use oxygen to establish cross-links between molecules, yielding a tougher finish.  Both types of resins possess many of the same scratch, mar, heat and solvent resistant properties as the solvent-based versions, and manufacturers blend the two resins to enhance certain characteristics. Some of the newer-generation resins used in water-based finishes are actually produced as acrylic-urethane molecules to further improve their clarity, adhesion and rub through properties.
Water-based finish technologies start with mono-component finishes then progress to two component catalyzed coatings and further progress to Ultra Violet (UV) cured materials that after flash off, dry instantly upon exposure to UV lighting.

Advantages
There are new water-based finishes that meet the most demanding finishing requirements.
The key ingredient in any finish is the resin, or “solid”, that dries to form the final film.  The more solids the finish contains, the thicker the dry film will be. Typical water-based finishes have higher solids content which help the finish build faster, thus requiring fewer coats. When applied to cabinets, water-based finishes are very resistant to scuffs and produce hard, tough finishes. Water-based finishes have exceptional clarity, making them ideal for white or “pickling” finishes.
Water-based finishes are non-flammable and contain fewer environmentally hazardous materials, resulting in a product that is safer to apply, much less harmful to the environment and more appealing to the consumer. As the finish is water-based, lighting and electrical fixtures in and around the finishing area do not have to be explosion proof.
Cleanup before the finish cures is easy using warm soapy water, while cleanup after curing will require an aggressive solvent.   
As there are fewer solvent fumes than from solvent-based finishes, final finishing and or touch up with water-based finishes can be done on site where there is less than ideal ventilation.