Pressure on the lever, causes the fluid to compress, along a fixed length ... which then pushes on the calipers, squeezing the pads to the rotor.
As you take pressure off the lever (let go), the pressure on the fluid reduces, therefore allowing the calipers to retract and rotor to spin more freely. The fluid acts as a slight vaccum sucking the caliper back (I think) ??
Air bubbles are bad, because it takes different pressure to compress, therefore affecting the overall efficiency of the fixed length system.
Systems with a reservoir, is slightly different in that it pumps fluid too / from the fixed line, allowing expansion of the fluids when hot and possible escape of gases within the line, reducing the impacts to performance.
I'm not an engineer, but I think thats the crux.