Sprinklers are designed with a small piece of glass holding back a stream of water or other fire retardant.

The glass is broken by heat, so when the sprinklers are near to a fire the glass will shatter and the fire retardent will be released. This is how they function in Garry's Mod as well - a nearby fire will cause them to activate and *attempt* to extinguish (they may not always be successful). Note that they operate separately from other fire alarm devices.

Hopefully this helps.