The general mechanism of an air compressor is a piston or rotary element (e.g. rotary screw or vane) that allures air, which is compressed into a storage tank. Naturally, Water Lubricated Air Compressor because the piston or rotary component needs to move consistently and smoothly because of this to work, it generally needs to be lubricated.
In a lubricated air compressor, there is lubricating oil which will keep the piston or rotary element running smoothly without damaging the system. The lubricant also helps to dissipate warmth and keep maintaining air compression efficiency.
Oil-totally free air compressors also use a piston or rotary element, but they bypass the lubrication problem by coating the compression element with a pre-lubricating material like Teflon. Some oil-free compressors could also use water instead of oil for the lubricating and cooling procedure. These alternate materials defend the pump and invite the mechanism to go smoothly without the need for any 
oil-centered or synthetic lubrication.