The principle behind pump water storage systems is very simple. Electricity costs more to produce during the day time because it is in greater demand by customers and businesses (called peak time). At night time electricity is cheaper, this is called 'off peak' time, as less people and businesses need large amounts during the night. During the night, water is pumped from a low lake to a high lake. Cheap electricity is used to carry out this process. During the day time the water from the high lake is released in a controlled way and as it descends at high speed, it is used to turn turbines, generating electricity.
This sounds simple but the costs of such a system is very high, especially if the environment is not to be damaged.
An excellent example of this type of power station is Dinorwig in North Wales, opened in 1984

The system is mainly housed within man-made caverns inside the mountain and so impact on the environment is minimal. Natural lakes at the top and bottom of the mountain are used as the low and high lakes. The system is generally used to support the National Power Grid at peak times, when demand for electricity is at its greatest. Water is released from the high lake when electricity is needed. At night time the water in the low lake is pumped back up the mountain to the high lake, for use again.