A reservoir is a large amount of water stored in one place. Reservoirs are usually formed when a dam is built across a river. A dam is a large wall that prevents water from passing. Thus, the river water backs up behind the dam. This water will eventually spill over the top of the dam, or it can be released periodically in a controlled manner. Either way, the surface of the water in the reservoir is much higher than the base of the dam.
A difference in height represents gravitational potential energy. When the water is allowed to pass over (or through) the dam it falls, and the gravitational potential energy is transformed into kinetic energy. The running water passes through the turbines of the hydroelectric plant at the bottom of the dam. The kinetic energy of the water is transformed into rotational kinetic energy as the turbines spin. Mechanical energy is the term used to describe the work done by water to turn the turbines. The rotational kinetic energy in the turbines is then transformed into electric energy by the generator.
Now, another very interesting type of hydroelectric power production doesn't include a river at all! A reservoir is simply created at the top of a hill next to a larger body of water (such as a lake). During the night (when demand for electricity is low and the cost of electricity decreases), an electric pump is used to transport water from the lake to the reservoir. In this case, electric energy is being used to create gravitational potential energy. During the day (when demand for electricity is high and the price of electricity increases), gates are opened which allow the water to flow down the hill and through the turbines to produce electricity. In this case, electricity is used to produce electricity, which seems counter-intuitive and would not be cost-effective, if not for the fact that electricity can be purchased cheaply at night and sold for a higher amount during the day.