A heat pump pulls heat from the ambient air and accumulates it in the tank, unlike a conventional water heater which uses combustion or a resistance heater to generate the heat from an energy source. That is why heat pumps are generally much more efficient than other types of water Heaters, including on-demand Heaters which have a very high instantaneous load.

Heat pumps do have their weaknesses though, specifically they lose efficiency the colder the ambient temperature is, so if you live in the arctic circle this might not be the technology for you.