I am extremely confused. I understand that voltage is like pressure. but I don't understand the whole thing about it being the "potential difference" between two points. Are there two points each with an assigned value? I am extremely confused. Please help.
look at a battery, there is a "+" side and a "-" side the "+" side is the positive potential, for example 1,5V (or 12V in your car..... ) the "-" side is the potential 0 it is at 0V (often referenced as GND )
everything which is directly connected to the "-" is at 0V everything which is directly connected to the "+" side will be at 1,5V (positive potential) between one point connected to the "+" and one point connected to the "-" , there is a potential difference of 1,5V (in our 1,5V battery example)
In the water analogy, imagine a power supply as vertical pipe with a pump in the middle. Ignore kinetic energy here, the pump only brings the water from one height to the other, it gains potential energy according to the length of the pipe. So your power supply generates potential energy according to the difference of top and bottom opening of the pipe. It is exactly the same with voltage (though voltage corresponds to the pressure of the water column, not the potential energy, to be exact). You can stack two of these pump pipes to get twice the height, thus twice the pressure of the water column, just as you can put two batteries in series to get twice the voltage. That's what it is all about.
Also consider reading my answer to someone with similar problems in understanding electronic basics: http://forum.arduino.cc/index.php?topic=433971.msg2993434#msg2993434
but I don't understand the whole thing about it being the "potential difference" between two points. Are there two points each with an assigned value?
The most extreme example for "potential difference" is, when a thunderstorm comes up and the potential difference (due to different number of electrons on each side) between the electrons in the air and earth ground is high enough (millions of volt) to trigger a lightning strike.
Same happens whenever the number of electrons on two different points of a material are not equal. Then you get an electrical field with a potential between these two points. If those different points are isolated - no current can flow (only when the difference is so high that the electrical field can cause a lightning).
If you connect the two points with conductive material, a current flow of electrons begins until the two points have the same amount of electrons on each side (then they are balanced and no potential can be measured). If you have a resistor in series with your connection between the two points, the electron flow (=current height) is slowed down and it takes longer to balance the two sides.
Hope this explanation is not too simplified for the EE amongst us.
Think of it as "distance" - if I say I am 15 feet away, the first thing you want to know is "from what". The "distance" is like the potential (voltage). You may be 15 feet from something, 25 feet from something else and a mile from something else. They are all relative measurements and to measure them, you need to measure between the object and where you are for the "distance" to be meaningful. For example, I am moving at about 500 miles/hour. I am also moving at about 67,000 miles/hour ... the first is the speed of my location on the planet as it rotates. The second is the speed of earth through space in the orbit around the sun - without a reference point, you can't come up with a valid number.
There is no absolute voltage, its only ever relative. Its not like pressure in this regard, its like differential pressure.