The device works by releasing a chemical stored within it's spherical center. Once released, the chemical (dubbed Micro-Oxygen) reacts violently with the water, isolating oxygen molecules and splitting them. The molecules are then liquified. This means that any organism exposed to the chemical will first suffocate from the lack of oxygen, and then disintegrate. Depending on the amount of the oxygen destroying chemical released, the body of the victim will either be eaten down to the bone or destroyed completely. When used to its full potential, the Oxygen Destroyer will leave no remains.
The weapon was first demonstrated on a tank of fish, which were instantly reduced to skeletons. In Godzilla Against MechaGodzilla, Kiryu's blueprints incorporated Godzilla's skeleton within him to make the design process and construction less strenuous.
The Oxygen Destroyer would carry on a larger role, and was later revealed to have awoken prehistoric creatures that mutated into the monster Destoroyah in the 1995 film Godzilla vs. Destoroyah. That film also noted that "if it had been used on the ground, it's quite obvious that Tokyo would've become a cemetery."
The chemical reaction initiated by the weapon (which is the actual part that destroys the oxygen) also powers one of Destoroyah's attacks, a beam of micro-oxygen, in the shape of a double-helix, with the destructive power of the Oxygen Destroyer itself.
It should be noted that even though many weapons have been created to kill Godzilla, the Oxygen Destroyer is the only man-made weapon to accomplish this task.