Tankless water heaters, also called on-demand water heaters, heat water directly as it flows through the unit, without the need for a storage tank. They provide hot water on demand, which means they only heat water when you need it, eliminating the need for a large storage tank and reducing energy consumption. Tankless water heaters are compact and can be installed closer to the point of use, resulting in faster hot water delivery and potentially saving water. They are a popular choice for homeowners seeking energy efficiency and continuous hot water supply.