By potential energy we mean stored energy or energy of position. In other words, potential energy is energy which is a body possesses by reason of its position, and which is capable of being transformed into kinetic energy.
Example
The potential energy of water in dams is used to run turbines in order to produce electrical energy from genitors. We note here that water was stored and after it falls down it gained kinetic energy. If falling down, it has gained kinetic energy. If falling down, it has gained kinetic energy, and so it is capable of doing work.
Due potential energy of the compressed spring in a loaded gun, the bullet is released with large velocity on firing the gun. Thus a wound up spring processes potential energy. In the process of winding up, the positions of the parts of the spring gets altered. As they take their normal position the energy of the spring is released and changed into kinetic energy.
Petrol vapor mixed with air possesses potential energy. When a spark explodes the mixture the potential is changed into the kinetic energy which moves the car. Likewise due to the potential energy of the stretched bow, the arrow goes forward with large velocity when the bow is released.