it uses resistive heating elements that are encased in an electrical insulation and then covered with metal, like the cooking elements in a stove, or on a cooktop range. when electricity flows through them they heat up and get hot (like a light bulb filament wire glows) When the water reaches a certain temperature set on the thermostat, it opens the electricity,turns it off to the element until the water cools down past whatever temperature it is set at, and then it turns back on. That is why if too many people take a shower you will run out of hot water because cold water is always flowing through the water heater and when all the hot water is used, you have to wait for the heating elements to heat the water back up. To make sure it heats up quickly make sure all the HOT water faucets are off so that water isn't flowing through it and is just sitting there heating up. All work on the same principle.
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