Rain water falls and then soaks into the ground. Most of the time it is too much for the garden and grass and runs away to dams and other man made water retainers. Rain and water harvesting allows you to capture this water and store it in tanks for later usage. A lot of the time during the summer months a home could be run solely harvested rain water. If the water is to be used in showers and basins, it will have to undergo various treatments to ensure it is safe for human consumption.
But for the garden toilets swimming pool and other functions water harvesting makes a lot of sense and proves amortize itself very quickly.
Tanks can be stored above or underground. In most cases gutters are required to catch the rain water and direct it to the tanks.