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A microwave oven heats food by passing microwave radiation through it. Water, fat and other substances in the food absorb energy from the microwaves. Many molecules (such as those of water) are electric dipoles, meaning that they have a partial positive charge at one end and a partial negative charge at the other, and therefore rotate as they try to align themselves with the alternating electric field of the microwaves. Rotating molecules hit other molecules and put them into motion, thus dispersing energy. This energy, when dispersed as molecular vibration in solids and liquids (i.e. as both potential energy and kinetic energy of atoms), is heat.
Hence, microwave oven acts on the principle of giving rotational energy to the water molecules.