Conventional water tanks keep water hot all day, every day of the year. They turn on and off, on and off, over and over, all day long. When you need hot water, it is there for your use. That is, until is runs out! If you have a 40 gallon tank and a family of four then you are most likely used to running out of hot water in the morning.
Generally, water tanks keep water in the 130 - 140 degree F range. The water has to be kept this hot to kill off bacteria. Most people can only stand to take showers in the 105 -112 degree F range, so when it comes time to use the water that you have kept hot all day long, you must mix it with cold water in the shower in order to use it.
OK, you get the idea. There is a lot of wasted energy here.
If you have a natural gas or propane water heater, then you most likely have a pilot light that always burns, all the time. This small use of natural gas or propane adds up over time and is wasteful.
Tankless water heaters operate differently from water tanks. Tankless heaters only heat the water when you are actually demanding hot water. So, for most of the day, there is no demand for hot water. And, therefore, there are no utilities being consumed.
When you turn on a shower or a sink, the tankless water heater turns on and heats up the water instantly. The hot water is endless -- you can generate hot water for shower after shower.
Really, the only downside is that there will be a few second delay in getting the hot water as the burners first fire up.
Now, as for the water temperature, tankless water heater owners generally set the water temperature to about 112 degrees F. And, at the shower they usually turn on the hot wter almost full blast. Since you are just now heating up the water, there is no point in immediately cooling it down with cold water just before you use it -- that would be wasteful!
Tankless water heaters go on and off much fewer times per day. And, as such, they can last for 20 years (as compared to the normal life of a water tank of 6 to 8 years).