Where does the steam come from?
To get steam, water has to boil, right? And if water boils at 100 °C, how does steam form in water that is well under 100 °C? The answer to that question is that water boils at 100 °C at sea level, where pressure is one atmosphere, which is about 101 kilopascals (kPa). If the pressure is increased, for example, to 200 kPa, the boiling point increases to around 120 °C. Likewise, if the pressure is reduced, the boiling point is reduced. So if the pressure drops to around 1.2 kPa, the boiling point will drop to about 10 °C.
Along with noise, when a steam bubble implodes, it creates a micro-jet that, over time, can result in considerable damage to materials in the immediate vicinity
Forming bubbles of steam in cold water
As propeller blades turn, pressure discrepancies occur. On the side of the blade that pushes against the water, pressure is increased. But on the other side of the blade the pressure drops, and the faster the blade turns, the lower the pressure drops. If the pressure drops enough, the water in that area boils.
And the noise?
The low-pressure zone is localized around the propeller, so when the bubbles leave that area they return to the normal pressure for whatever depth they are. This causes them to rapidly revert from gas to liquid, and because the gas takes up more space than the liquid, the bubbles implode. This creates a great deal of noise.
Watch this video to learn more about cavitation (3:03):