The basic principle of most hot water heaters is the same: heat rises. Cold water brought in through a "dip tube" settles to the bottom because of its higher density and rises to the top when it's heated. The hot water at the top is pumped through a separate pipe for household use.
In storage tank systems, a heavy steel reservoir holds the water - generally about 40 to 60 gallons of it. Many tanks have a glass or ceramic liner bonded to the inside to keep rust out of the water. Insulation surrounds the reservoir and is covered by the outer shell.
A thermostat controls water temperature inside the tank. Many electric water heaters have a separate thermostat on each of two elements (similar to the elements inside an electric oven), which can be set between 120 and 180 F (or 49 and 82 C). They will either operate separately or in tandem.
Located inside the tank of gas water heaters is a thermostat that's an essential part of the gas control valve. When the temperature drops, the thermostat tells the gas control valve to supply gas to the burner. A "thermocouple" ensures the pilot light is on to prevent gas leaks.
Since temperature is always being maintained and the water will cool even when you're not using it, both gas and electric heaters (with tanks) can be inefficient. Recommendations to maximize water heater efficiency are often suggested.
Other important parts
Look for these other important features on your storage water heater:
Solar water heaters utilize a similar storage system but operate with no running costs and at a lower heating capacity.