The Wikipedia article on fatty acid metabolism contains the full answer to your question. To summarize in laymen's terms:
- fatty acids are broken down into acetyl-CoA molecules
- acetyl-CoA is consumed in the TCA cycle
- the TCA cycle uses acetyl-CoA + 2 H2O + stuff to produce 2 CO2 + energy + stuff
From Acton's comments below:
"Water is yielded in overall fatty acid oxidation. You left out the most important part, the electron transport chain, where the bulk of the energy is actually produced. Reduced protons from beta oxidation and the Krebs cycle donate their electons to oxygen via the electron transport chain to form water, producing ATP. "Burning" 100 grams of fatty acids produces roughly 100 grams of water."
If you're asking about the fat that we eat but don't store on a low-carb diet, some of the fatty acids get broken down into ketone bodies, and the ketone bodies can be expelled through breathing (keto breath) or expelled through urine. I believe both of these are rather minor amounts, however; most of the fat is converted to energy, making you feel "more energetic" and/or boosting your body temperature.