To understand how insulation works it helps to understand heat flow, which involves three basic mechanisms -- conduction, convection, and radiation. Conduction is the way heat moves through materials, such as when a spoon placed in a hot cup of coffee conducts heat through its handle to your hand. Convection is the way heat circulates through liquids and gases, and is why lighter, warmer air rises, and cooler, denser air sinks in your home. Radiant heat travels in a straight line and heats anything solid in its path that absorbs its energy.
Most common insulation materials work by slowing conductive heat flow and -- to a lesser extent -- convective heat flow. Radiant barriers (which are not insulation products) and reflective insulation systems work by reducing radiant heat gain. To be effective, the reflective surface must face an air space.
Regardless of the mechanism, heat flows from warmer to cooler until there is no longer a temperature difference. In your home, this means that in winter, heat flows directly from all heated living spaces to adjacent unheated attics, garages, basements, and even to the outdoors. Heat flow can also move indirectly through interior ceilings, walls, and floors -- wherever there is a difference in temperature. During the cooling season, heat flows from the outdoors to the interior of a house.
To maintain comfort, the heat lost in the winter must be replaced by your heating system and the heat gained in the summer must be removed by your cooling system. Properly insulating your home will decrease this heat flow by providing an effective resistance to the flow of heat.