By turning the shaft of the potentiometer, you change the amount of resistance on either side of the center pin (or wiper) of the potentiometer. This changes the relative resistances between the center pin and the two outside pins, giving you a different voltage at the analog input. When the shaft is turned all the way in one direction, there is no resistance between the center pin and the pin connected to ground. The voltage at the center pin then is 0 volts, and analogRead() returns 0. When the shaft is turned all the way in the other direction, there is no resistance between the center pin and the pin connected to +5 volts. The voltage at the center pin then is 5 volts, and analogRead() returns 1023. In between, analogRead() returns a number between 0 and 1023 that is proportional to the amount of voltage being applied to the pin.