There are all sorts of chemical reactions going on, and even in wine, where it has been studied, the answers are not fully understood. However, there are a few things that seem clear. Alcohols, especially some of the fusels (higher alcohols) which can cause harsh burning and some off odors will combine with acids to form esters which don't have the burning alcohol character, and which provide more nice aromas.
Phenolic compounds that can cause bitterness tend to aggregate forming larger molecules that cause less bitterness, or they bind with proteins or yeast cells and drop out taking the bitterness with them. The yeast cells (which are bitter) drop out. Undoubtedly there are many other reactions at work, but the result is that smoother, better smelling and tasting mead usually develops.
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