An on demand water heater is also referred to as a tankless water heater. The concept on on demand means that the water is not ready to go at all times such as in a traditional water heater. The only time that the on demand unit will kick on is when you are running hot water.
With an on demand water heater you never have to worry about running out of how water. You do have to make sure that you size your unit properly otherwise it may not be able to meet the demand of your household.
On on demand water heater works better in climates that do not get too cold. The warmer the water coming into the unit, the less work that the tankless water heater must perform to reach the optimal temperature.