The Faraday effect is manifest when a changing magnetic field induces an electric field. Hence the effect is also known as "induction." It is most simply exemplified by a loop of wire and a bar magnet. If one moves the magnet through the loop of wire, the changing magnetic field within the loop gives rise to an electrical current in the wire. The current is larger for stronger magnets, and it can also be augmented by moving the magnet more quickly. In other words, the size of the electric field created depends directly on the rate at which the magnetic field changes. In principal, by moving a very strong magnet quickly enough, the induced current could illuminate a common light bulb. To really understand the effect, note that the bulb would only be lit as long as the magnet was moving. As soon as a magnetic field quits changing, the Faraday effect disappears.
Many useful devices exploit the Faraday effect. Most notably, an electric generator relies on it to derive electricity from mechanical motion. A generator uses the energy of burning fossil fuels, for example (or falling water in the case of a hydroelectric plant), to rotate a loop of wire between two magnets. Since the loop spins, it perceives that the magnetic field is changing and, via the Faraday effect, yields electricity which can then be sent out to traffic lights, radio alarm clocks, hair dryers, et cetera.
Michael Faraday discovered the effect in 1831 at the Royal Institution Laboratories in London. When he powered up an electromagnet, a nearby coil of wire (in no way physically connected to the magnet) registered a sizable but brief current. While the electromagnet remained on, no further current could be detected in the nearby coil. However, when he turned his magnet off he again observed a short-lived burst of electrical activity in the otherwise dormant coil. He reasoned that by turning the electromagnet on and off, he had created abrupt changes in the magnetic field inside the coil and that these changes had, in turn, created the fleeting electric current. For Faraday, this discovery carved both prestige in the physics community and, moreover, a place in scientific history. Neither of these was a small feat because his fellow physicists considered his educational background to be inferior. He lacked any formal learning of mathematics, and his training in chemistry was (in the eyes of his colleagues) a questionable preparation for his career as a physicist.