An air conditioner cools the air in your home by circulating refrigerant through a closed-loop. A heat pump does this as well, but it can also reverse the process to heat your home. In heating mode, a heat pump circulates the refrigerant through a loop. The refrigerant absorbs heat from the outdoor air and transfers it indoors. In cooling mode, the process is reversed. The refrigerant absorbs heat from the indoor air and transfers it outdoors. Related: Air Conditioner (AC) is Short Cycling (HOW TO FIX IT)