How does ethanol fuel work?

Yeast converts sugar into ethanol and carbon dioxide. That part is ancient and easy. The fuel-specific work comes afterwards: distillation to concentrate the alcohol, then dehydration to remove the last of the water.

The water matters. Ethanol blended into gasoline while still carrying water will separate in the tank, which is why fuel-grade ethanol is dehydrated well beyond what distillation alone achieves.

Ethanol has high octane and burns cleanly, but carries around two-thirds the energy of gasoline per litre. Expect lower fuel economy on high blends even when the engine runs perfectly.