If you pull the head off an engine that is burning oil past the rings, you will notice the tops of the pistons are clean where the oil comes up. Usually a crescent shape on one side or the other. The oil combines with the carbon and sets fire to it essentially. Years ago with leaded fuel the occasional domestic V-8 would get a piston knock, the result of a flake of heavy carbon coming loose and getting pinched in the quench zone of the head. Half a litre of ATF and the carbon dissappears as the engine is revved. Always impressed me. I have also done this trick before tearing an engine down for rebuild, to see the cleaning action. Very impressive. It is just that the smoke produced is extreme, and far too much for any engine with an O2 sensor or a cat. Of course modern engines don't produce heavy carbon internally anyways.
Water works more slowly, and doesn't hurt anything, but it softens the carbon rather than burns it out.