How does earthquake spell works?

For starters, read the spell description.

"Weaken Walls and buildings with crippling earthquakes! Earthquake Spells damage structures based on their maximum hitpoints. Repeated Earthquakes deal decreasing damage to the same buildings, but increasing damage to the same Walls. No wall can withstand the might of four Earthquake Spells!"

This gives you an excellent idea of how the spell works. The only thing that's unclear is what it means by the decreasing/increasing damage it does to buildings/walls. This is where the Earthquake page on the Clash of Clans wiki comes in handy.

The second Earthquake Spell dropped on a structure will do 1/3 the damage of the first spell, the third will do 1/5th, the fourth will do 1/7th, and so on.

It's not immediately clear how much the damage from Earthquake increases on walls with subsequent castings. What is clear, however is that 4 Earthquake spells of any level will destroy all walls of any level within their area. This makes them great for cracking bases with tight enclosures and the Jump spell isn't available or practical to use. If you really want to understand how wall damage increases, you can read through the answer provided in this related question: How does 4 earthquake spells destroying any wall in clash of clans work?