The hydroxide ion in the solution abstracts the alpha hydrogen from alpha-haloketone to form a carbanion. The carbanion formed attacks the halogen containing carbon, causing the removal of the halide.
The intermediate ring thus formed has an electrophilic carbonyl carbon which is attacked by another hydroxide ion from the solution. The adduct thus formed undergoes rearrangement to form a carboxylic acid containing a carbanion.
The carbanion abstracts the acid proton to form a carboxylate ion in the final step.
The reaction mechanism can be described as:

Mechanism of given Favorskii reaction