Refer to figure. 
The aircraft altimeter has a rotating knob that allows the pilot choose the appropriate pressure setting in hectopascals (hPa). The altimeter then measures the current pressure at its location and compares it to the pressure set by the pilot. This pressure difference is then converted into altitude difference assuming ISA conditions. This is done automatically by the instrument. The pressure set by the pilot changes the pressure reference the altimeter uses to measure the altitude from. There are some common altimeter settings:

• QNH ⇒ The barometric pressure measured at an aerodrome which has then been mathematically adjusted down to mean sea level using the airfield's elevation. This adjustment assumes the ISA temperature for the station. QNH is used to obtain elevation when on the ground and altitude during flight.
• QFE ⇒ Atmospheric pressure at aerodrome elevation (or at runway threshold). This altimeter sub-scale setting is used to get an indication of 0 ft when the aircraft is on the ground at the aerodrome, and the height above the aerodrome during flight.
• QNE ⇒ 1013.2 hectopascals (hPa) standard altimeter setting to obtain Flight Levels. It is used during flight to provide the same reference for all aircraft.

When using QNH, the altimeter indicates your altitude above mean level.

QFE → height above aerodrome level 
QNH → altitude above mean sea level 
QNE → Level above the 1013.25 hPa datum