[Tonga]

The impact pistol requires physical contact between the target's hull and the torpedo itself, best at an angle near 90° to gain the highest probability of a successful detonation. Imagine your torpedo had a button right on its nose saying "Press me". If you wanted to press the button, you would probably try to do so by pressing right on top of the button, not from 45° or so, because you might only hit the button without really pressing it down far enough. This is only to give you some very basic idea of how it works.
Impact detonations often only inflict minor damage to the target, hull damage and flooding, but rarely actually sink the ship. Usually it takes at least a second torpedo to inflict terminal damage, sometimes even more. However this is a good method to use against smaller and less armoured targets or in cases where you would only slow a target down by hitting its engines, rudder etc. to then quickly pick up on another target - whatever the situation might require. Impact pistol also is a good choice in cases where you actually are rather close to your target and where you can ensure that the torpedo will hit at the desired location along the ship (usually the ammunition magazines, fuel tanks, engine room etc.). Depending on where exactly you hit the target, you can use its own ammunition and fuel to help you blow it up - small impact, big boom.

The magnetic pistol was quite unreliable in its first years. However the concept behind it is far more effective than the rather simple impact pistol. Ships usually are - to put it in simple words - built in a manner that requires equal pressure under the keel from bow to stern in order to keep the vessel from cracking up. Magnetic pistols mainly are proximity sensors that react to the ship's hull because it usually is made of steel, which is magnetic itself. So, a torpedo can also detonate near a target, without literally hitting the target itself. This means that you can actually set a running depth for the torpedo and fire it right under the ship, where it then explodes. The explosion then mainly creates high pressure and a huge gas bubble which has enough energy to break a ship into parts, causing it to sink pretty quickly.
This are some videos of such explosions on the net:
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In the last one you can nicely watch the "flash" under the ship right before everything above blows up. This is the aforementioned "gas bubble" caused by the torpedo. At this point, the torpedo itself has already exploded. Everything after that is only a result of this first event.

As you can see, the damage is devastating, and that is why most torpedoes today still use this technology, only in optimized form of course.

Personally, I prefer magnetic pistol, but impact detonation can also be fine in certain situations.