By AWT explanation of quantum entanglement is closely related to wave function collapse. Try to imagine, you're a sailor, who is staying at night on the end of floating wharf, to which some boat is attached. Because night sea is stormy, everything (both sailor, wharf and boat) are wobbling up and down, but in different phases. From the perspective of sailor this boat sways randomly.
The observation of quantum particle is analogous to situation, when sailor touches the boat for a moment, thus exchanging some kinetic energy with it. What will happen, after then? The wharf and boat will begin to oscillate at phase. It means, the sailor will keep his relative position with respect to boat, so he cannot detect any boat wobbling anymore, because he moves by the same way. We can say, the wave motion/function of boat has collapsed from local perspective of that sailor. It still remains undulating from perspective of another observer, though - this is the moment, when relativity takes place in quantum mechanics.
In AWT both particles of observer, both particles of observed object are formed by dense nested clusters of another undulating particles, recursively. At the moment, when observed object exchanges some energy with particles of observer during process of observation, the undulations of both systems aren't independent anymore: their internal fluctuations will undulate at phase, too. Briefly speaking, the observer will get entangled with the particle observed. As the particle doesn't undulate independently from this moment, the corresponding part of their mutual undulations will disappear from observation, because the internal motion of both systems has been synchronized.
This is what we are calling a collapse of wave function during process of observation. The observer and object are now undulating like single body - the common center of mass of both objects is forming a private reference frame, a sort of independent island of reality inside of wave ocean - from this idea the concept of many worlds follows. This state isn't permanent, indeed - due the omnipresent random undulations of environment a process called quantum decoherence will take place, thus breaking the entanglement state and synchronization of observer and observed object.
A more close and natural mechanical analogy of entanglement can be demonstrated for undulating droplets levitating in low gravity conditions (i.e. oil droplets inside of lava lamp or water droplets under diamagnetic levitation, for example). When we split such undulating droplet into two halves by thin wire, the resulting parts will remain undulate at phase with respect to the center of their common mass. The smaller droplets will therefore "remember" the state of original droplet in certain extent, so they can serve as a quabit memory. Such pair will create their own "inertial reference frame" and/or "local universe" by many worlds interpretation. But as we can see - nothing "spooky" is on such entanglement, in fact.
Note that even though we can combine the different droplet pairs with the same surface amplitude or even frequency, such reconnection will not restore the surface wave of original droplet, until the phase of the surface waves of both droplets will not remain exactly the same - from this the quantum cryptography follows. We can see, while this model is very trivial and natural, only common disbelief in Aether models prohibited scientists to consider it a long time ago in explanation of various quantum mechanics phenomena.