How do solar panels work?

Firstly its important to understand there are two basic types of solar panel available.

Solar Hot Water:
Most people tend to think that solar panels generate electricity, but there is also another type of panel that creates hot water instead.

The type that creates hot water is generally referred to as a solar thermal panel. The type that creates electricity tends to be called a PV panel; PV stands for Photovoltaic.

Solar thermal panels are by far the most common type of system to install in a domestic residence in the UK, Europe, or USA because when you compare the time the 2 different types take to effectively pay for themselves against the energy saved on a utility bill the thermal panel usually wins.

Thermal panels usually pump water from a storage cylinder in the house up into a panel on the roof where it gets hot and returns this heat back to the cylinder, supplying hot water to the house for washing etc. They can in some circumstances be used to heat the house too, though this is less common and usually depends on the house being insulated to a very high standard. This is not an effective thing to do in old buildings or in very cold countries.

In the UK a domestic solar thermal system would be expected to supply around 60-70% of the domestic hot water needs.

Solar PV Panels:
A PV panel generates electricity, but is incapable of storing the electricity it creates. For this reason it must either be connected to batteries or pass the electricity to somewhere useful it can be used.

Battery based systems are usually referred to as "off grid". Those that pass the electricity on into the network that supplies domestic residencies are referred to as "grid connected". In domestic setups this means that the surplus unused electricity can usually reduce the house electricity bill as it can be sold back to a utility company. This method of selling any surplus electricity is managed in very different ways in different countries, resulting different levels of uptake in different places.
Germany and Spain legislate for electricity utility companies to pay high rates for electricity supplied by domestic PV systems pushing surplus energy back in to the network, resulting in a far higher uptake than the UK.

solar panels absorb the heat and sun light of the sun and transfers it to energy.
Solar energy is captured in a flat metal plate or solar cells installed in your roof of your house.
Solar panels produce electricity by converting the suns photon rays into electric energy. This works by using photovoltaic cells in the solar panel. The photovoltaic cells absorb the energy from the photons which causes them to push out electrons creating electricity.