Laser-induced optical breakdown, or LIOB, means that there is a kind of spark, and the medium becomes electrically conducting. The mechanism behind this effect is based on the acceleration of free electrons to high energies so that collisions with other atoms or molecules can lead to secondary free carriers. This starts an avalanche process, during which appreciable densities of free carriers can be built up within a short time. A plasma is formed, which can have a significant electrical conductivity. The plasma can be maintained by further current flow, which generates additional free carriers.
It is this phenomenon that creates the shock wave that is transmitted through the soft tissue and breaks up the tattoo pigment particles. It causes no harm to your tissue.