Matter exists in three phases: solids, liquids, and gases. Solids have a fixed shape and volume, with molecules packed closely together, as seen in pencil. Liquids have a fixed volume but take the shape of their container, like water. Gases easily change their shape and volume, with particles spreading apart, such as air in a balloon. The key difference between the three phases is the arrangement of molecules - closely packed in solids, somewhat free in liquids, and freely moving in gases.