There are two types of private health insurance - hospital policies cover you when you go to hospital, while general treatment policies (sometimes known as ancillary or extras) cover you for ancillary treatment (e.g dental, physiotherapy). Most health funds offer combined policies that provide a packaged cover for both hospital and general treatment services, or you can buy separate hospital and general treatment policies to 'mix and match'.
If you're purchasing cover for the first time or upgrading your plan, you need to serve a waiting period before you can claim your benefits. During the waiting period, you don't receive any benefits for certain treatments or you receive lower benefits for a period of time.
You should also take note of what is and isn't covered on your policy - not all policies are comprehensive. Depending on your level of cover, you may not be fully covered against all costs associated with your treatment and have to pay some out-of-pocket expenses.
For further information, see: http://www.privatehealth.gov.au/healthinsurance/howitworks