Take a look at EVE: Source... there's some explanation there.
I'll also quote some of the stuff on the capsule from my original source document that didn't make it into EVE: Source due to space related editing restrictions:
Quote:Within the chamber, the Capsuleer is immersed in the amber colored low viscosity, breathable suspension solution, also pressurized at atmospheric standard. The Capsuleer's lungs are flooded with this fluid on immersion, allowing the pilot to liquid breathe for the duration of their flight with the solution's bio-nanite rich composition acting as a carbon dioxide scrubber.
The liquid suspension helps in further cushioning them from the rigors of faster than light travel and external impact, stabilizing lung and body pressure in space, as well as being rich in nutrients and anti-bacterial nanite compounds that assist in maintaining hygiene and a sterile environment for the pilot.
Quote:Hydrostatic Fluid :
Usually known to Capsuleers by its affectionate name of GÇ£pod gooGÇ¥, the hydrostatic fluid used in Capsules is a complex and perfectly balanced self-sustaining ecosystem that supports, nourishes and maintains the Capsuleer's physical health while he or she is immersed.
To give it its full name, we would technically call the liquid an oxygen rich, nano-saturated breathable glucose based suspension solution.
The entire solution is formed around a base of common carbohydrate Glucose with various nutrients, vitamins and minerals amalgamated into the base compound along with several variations of bio-nanites that assist with life support.
For purposes of liquid respiration, the solution remains oxygen rich, with an infusion of nano-technology designed to absorb carbon dioxide from the Capsuleer's lungs, and break it into component parts before releasing paired oxygen molecules back into the fluid.
During normal flight, the hydrostatic fluid is circulated within the Capsule and drawn out through the attached vessel's life support system where the fluid is carbon scrubbed to prevent lethal build up.
Coupled with respiration, the fluid provides the base nutrients and vitamins required to sustain the Capsuleer for extended periods of time in flight.
Quote:Operating under its own power, the Capsule will provide approximately 90 days of life support for the pilot, before the solution and the nanites within become saturated with carbon and are unable to further process carbon dioxide. At this point, the Neural Interface Life Support will trigger the TEBS, euthanizing the pilot and returning them to their chosen cloning facility.
The last quote is consistent with current game mechanics, where after 90 days in space and not being logged in, your character is automatically returned to your home station.
There's also a lot more relating to the capsule that I've written, just haven't had the chance to update the wiki