Surprising no one, unlike traditional heaters, this type of water heater has no tank. Conventional water heaters hold water in a tank, keeping it heated at all times to be ready for delivery once you turn on the hot water faucet.
Tankless options, however, use gas or electricity to heat the water quickly as needed. This method means they are providing hot water on demand, rather than keeping 40 or 50 gallons heated at all times.
When you turn on hot water at the sink or shower, cold water runs through a pipe into the tankless heater. Depending on the style, either an electric element or a gas burner heats the water rapidly and sends it to the faucet.