Why do humans suffocate if the air in their alveoli is replaced with water?

The alveoli are microscopic air sacs within the lungs, each of which has a wall that is only one cell thick. Each alveolus is surrounded by a net of capillaries, and they also have walls which are only one cell thick. They are so narrow that red blood cells must go through them stacked up in line, one at a time.

When blood enters the capillaries of the lungs, hemoglobin on the red blood cells is loosely bonded with carbon dioxide, which it picked up from the body's cells. Inside each alveolus, there is oxygen which has been taken in by inhaling the air outside the body. The concentration of oxygen is greater in the alveolus than in the blood at this time, and the concentration of CO2 is greater in the blood than in the alveolus. Therefore, hemoglobin releases the CO2 and it diffuses directly through the cell walls of the capillary and the alveolus, into the lung. Meanwhile, O2 in the alveolus diffuses from the lung to the red blood cell, where it bonds loosely with hemoglobin to be transported around the body.

The entire process is simple diffusion regulated by a concentration gradient, or diffusion from high concentration to low concentration of both CO2 (from blood to alveoli) and O2 (from alveoli to blood).

Once the oxygenated blood reaches the body's tissues in capillaries again, the process reverses and the tissues give off CO2 to the blood and the blood gives of O2 to the cells of the tissues. The now-deoxygenated blood is carried to the right side of the heart, where it is pumped to the lungs and the process reverses again. Oxygenated blood goes back to the left side of the heart where it is pumped throughout the body in a never-ending cycle, and all movement of gases follows a simple concentration gradient through walls that are one cell thick.