Potential energy is stored energy that an object possesses due to its position or state. There are two main types - gravitational potential energy, which depends on an object's mass and height, and elastic potential energy, possessed by objects like springs or balloons when stretched from their equilibrium positions. Potential energy remains stored until a change occurs, such as an object falling or a compressed spring releasing its energy. Greater mass or a higher elevation results in higher gravitational potential energy, while greater stretch correlates to increased elastic potential energy.