Basically, any heater that uses the exhaust gas (also called flue gas) to “preheat” the incoming water can cause that flue gas to condense into a liquid. Flue gases contain not only water vapor but also excess or unburned fuel, oxides of nitrogen and sulfur, and particulates. When that gas condenses into a liquid, the water is very acidic (mainly from the formation of nitric and sulfuric acid) and that can damage anything it comes into contact with.
It’s very similar to why automobile exhaust systems will “rot out” in cold climates - the gasoline or diesel engine creates hot exhaust that will condense into liquid in the exhaust pipe and muffler. If the engine and car isn’t allowed to heat up (short drives with a cold engine), all that water will sit in the muffler and exhaust pipe and cause corrosion.
Natural gas tankless water heaters operate in a similar fashion. The gas is burned to heat the primary coil but the exhaust gas also warms up the incoming water. This increases the efficiency of the water heater but one can not use standard galvanized chimney pipes for the warm air discharge, you have to use PVC. The exhaust air is not hot enough to melt the PVC but it contains lots of liquid water vapor (saturated vapor) that will leave behind condensate in the duct work. That condensate can be very corrosive. Most modern units try to capture and drain the condensate but some will invariably get into the exhaust.
