Hail is produced when strong upward air currents from thunderstorms drive liquid moisture up into freezing temperatures of the upper atmosphere. When the ice drops back down it will either be heavy enough to fall through the wind or shot back up into the atmosphere with more moisture attached to freeze again.
This process repeats until the hailstone is large enough to fall back to earth. The worse the storm, or the greater difference in temperature between the two fronts colliding that caused the storm, the bigger the hail will get. Small pea sized hail is most common but sometimes nature goes crazy and hits us with some seriously destructive storms.
A hailstorm of epic proportions that would freak even the toughest storm chaser out was captured in this video from ABC33/40 weather in Phoenix, Arizona.