It likely works similarly to a super sledge, with energy cells powering a kinetic energy storage device to increase knockback (although unlike a super sledge, the power fist cannot knock targets back). It is the most expensive unarmed weapon in Fallout. An improved version of this weapon exists in Fallout 2.
The power fist was a late addition to Fallout. Balancing for various forms of combat went on until very late in the game, when it became clear that characters specializing in unarmed combat couldn't keep up with the damage output necessary to finish certain battles near the climax; even when scoring critical hits, unarmed attacks rarely penetrated armor or did enough damage to keep the Vault Dweller competitive. Various "unarmed" weapons were added as a result, but initially only the brass knuckles and spiked knuckles were included. The power fist was included as a final upgrade, a natural addition to power armor, and a thematic tie-in to the power-assisted hand-to-hand combat portrayed in some dystopian futures of science fiction, such as Warhammer 40,000.