Synthetic waterstones are made up of small evenly sized bits of cutting particles (not sure exactly what they're made of) held together with a binding agent. You soak them in water, softening the binding agent and helping to release the particles. As you move the blade along the particles cut the steel, and become unbound from the stone (forming the sort of watery goop) which stays on the stone surface and helps cut.
Yep if you used the whole length and even pressure then that would be the case in theory. In reality I start about a couple of inches from the bottom end (i like to rest my thumbs on the stone as a sort of angle guide) and finish a inch or so from the top on each pass. This causes the middle bit to wear faster than the ends, hence concavity. Also causes my thumbs to wear out, although as of yet they havent required flattening.