I was asked this question by my 5year old son. I do not know how to explain to him .
2 reasons. The first (as anongoodnurse mentioned) is that cold temperatures temporarily knock out dermal surface nerves (in the winter you can verify that your face goes numb after a while outside).
The other reason is that a knee scrape produces inflammation (swelling and increased temperature). Cold water (or anything cold) counters these: stopping the inflammation temperature increase, then freezing out enzymes and proteins needed for inflammation and causing them to slow down or malfunction.