How does hail form?
Hail is often associated with thunderstorms that occur in the spring and summer months. In fact, a thunderstorm is crucial for the development of hail. Specifically, a hailstone forms in the updraft of a thunderstorm - the region of ascending air that feeds the storm with warm, moist air from the surface. Strong thunderstorms can have updrafts in excess of 50 mph and these strong vertical winds can sustain the growth of large hailstones. There are two main processes by which a hailstone can grow: wet and dry growth: hailstones can grow by both methods within the same storm.
Wet Growth
In the thunderstorm updraft, there are many water droplets. As the updraft rises above the freezing level, ice crystals begin to grow on any ice nuclei that are present, and the other droplets become supercooled, provided that the air temperature is above -40°C, at which point the droplets will begin to spontaneously freeze. As the ice crystals continue  to grow by the Wegener–Bergeron–Findeisen process, they become heavy and ascend slower than the liquid water droplets. These droplets make contact with the ice crystal and freeze onto it, in a process known as riming. Because the liquid droplets freeze, they release latent heat, which heats up the hailstone slightly, prolonging the time taken to freeze - any air bubbles trapped within the liquid are given time to escape, and this produces a layer of clear ice surrounding the hailstone.
Dry Growth 
Dry growth takes place when there is no liquid water involved in the hail growth. Typically, this will occur at very high altitudes within the thunderstorm, where the temperature approaches -40°C and there are many more ice crystals and frozen droplets than liquid droplets. Here, the hailstone can grow simply by aggregation (or fusion) with these other ice crystals. Since there is no latent heat released, air bubbles remain trapped within the ice, and it takes on a milky appearance. Fusion of a hailstone with pieces of graupel and ice often results in the knobbly appearance of large hailstones. Sometimes, two hailstones can fuse together, resulting in non-spherical shapes when they reach the surface. 
Hailstones may remain suspended within a strong updraft for their entire life, steadily growing all the time. When they get too heavy to be supported by the updraft, they fall back to the surface. Often, strong thunderstorms develop in a high-wind shear environment: so a hailstone may be blown out of the updraft during its growth process. It may intercept the tilted updraft on its decent and if the updraft is strong enough, it can loft the hail back into the storm, where it continues to grow. This may occur several times before the hail becomes too heavy and falls to the ground. Since the hail moves through regions of wet and dry growth several times, this can produce the classic concentric ring pattern within a hailstone. 
Concentric growth ring pattern of a hailstone. 
Credit: Visuals Unlimited/Corbis
Generally, for large hail to form, there must be a large amount of instability (CAPE), which can sustain a very intense updraft. The stronger the updraft is, the larger the hail that the storm is able to produce. According to the US National Weather Service, in order for a thunderstorm to produce 10p-sized hail, its updraft speed would need to be 37 mph. For golfball-sized hail, it would need to be around 56 mph and for baseball sized hail it would need to be over 100 mph. Thankfully, we rarely see storms this strong in the UK, although they occur on an annual basis in the Great Plains and US Midwest. 
Hail also requires strong wind shear, since this enhances the life of a thunderstorm, allowing the hail to grow for longer, as well as promoting a more intense updraft. A low freezing level within a thunderstorm and high absolute moisture content at low altitudes will also enhance hail growth. A dry atmosphere below the cloud base will allow for increased evaporation from the falling hail. The evaporative cooling associated with this evaporation actually re-freezes any melting ice, which reduces the mass of ice lost as it falls. 
For the USA, a hail size comparison chart has been developed in order for the public to relay a hail report to meteorologists. The world's largest hailstone by diameter and weight was observed in the US on July 23, 2010 near Vivian, South Dakota. The hailstone measured 8 inches in diameter, 18 ½ inches in circumference, and it weighed 1.9375 pounds (0.879 kg). 
Hail size comparison chart issued by the National Weather Service for the USA. 
Credit: NWS/NOAA