Walter achieved his remarkable results by using Perhydrol, a nearly pure hydrogen-peroxide solution, as an oxydizer. This was run through a catalysing system, which broke down the hydrogen peroxide (H2O2) into hydrogen and oxygen, in the process producing high pressure steam and oxygen at a very high temperature. The creation of the steam used up both of the hydrogen atoms and one of the oxygen atoms, leaving a free oxygen atom in the mixture. Since the temperature of the gases was hot enough to sustain combustion, diesel fuel was injected, which used the free oxygen atom. This increased both the heat and pressure of the steam. The steam was then used to power a turbine, which combined elements of both gas and Parsons (steam) turbine technology.
Unfortunately for the Kriegsmarine's submarine service—but fortunately for the Allies—the Walter system had nearly as many problems as benefits. The Perhydrol fuel was extremely corrosive, requiring the use of special fuel lines. Another problem, which was actually discovered by the Japanese, who used essentially the same system to power some torpedoes (including a prototype of the Kaiten "human torpedo" variant) was that, unlike conventional fuels, the Perhydrol required fuel lines without any right angle turns. The Perhydrol would sometimes "pile up" in the bends of such lines and spontaneously combust, with the obvious disastrous results.
Another drawback was that the Walter system was extremely thirsty. One reason for the larger hulls was simply that an enormous amount of fuel would have to be carried if the boats were to have sufficient range to be effective in combat.
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