Condensation occurs when warm and humid air comes in contact with cold surface. This phenomenon occurs naturally as fog, frost or dew, even clouds. The air always contains some water vapour, and the amount it can hold depends on the temperature. And if the air has more water than it can hold, the excess will be released on the cold surface.  

As we use heaters in winter the air inside has increased capacity to hold water and we add moisture to it by washing, cooking, cleaning, taking showers even breathing. So the air inside the house is usually more humid than outside and when this moisture-packed warm air comes into contact with a chilly surface, like a window, it cools down quickly and releases the water.

Condensation is mostly evident on windows but it can also occur on or inside external walls, especially uninsulated, in corners and other spots due to thermal bridging, or where there is not much air movement like behind furniture or inside closets.  

Condensation becomes a problem when the third factor, drying time combines with the two (moist air and cold surface) causing it. If left for too long the moisture can lead to damp, mould and rot and cause damage to the building shell or health problems when mould spores become airborne. Most common areas are bathrooms, laundries and kitchens and most common signs are mould on walls and ceilings and rotting timber frames. Exhaust fans help removing moisture from those rooms, but by extracting warm air into the roof space the problem is not solved just shifted to another area. Excessive condensation in the roof space could lead to rotting timber structure, plaster crumbling and compromised insulation.