If I hold a basketball out at arm's length, with a tennis ball on top, then drop both of them; as I understand it, the basketball will bounce, but the tennis ball will be shot high into the air.
What law of physics is this demonstrating, and what exactly is happening please?
Wiccan_Child already answered this, but I thought I'd provide a more quantitative answer since I do like this particular problem (which often appears in physics classes).
To get a handle on this problem, I'll make three simplifying assumptions:
1. The basketball and the tennis ball are perfectly-elastic (that is, if you bounce them off of the Earth, they bounce as high as you dropped them).
2. The basketball is so much more massive than the tennis ball that we can completely neglect the mass of the tennis ball.
3. We can ignore air resistance.
Okay, with those assumptions out of the way, we can calculate pretty easily how high the tennis ball will bounce. Since the tennis ball is much less massive than the basketball, from the tennis ball's perspective, bouncing off the basketball will be like bouncing off the Earth: it will bounce upward with the same relative velocity as it struck the basketball. But what is the relative velocity?
By the time the tennis ball strikes the basketball, the basketball has already struck the ground and is bouncing upward. So the basketball is going upward just as quickly as the tennis ball is going downward. Their relative velocity, then, is 2v. The tennis ball will go from a relative velocity of 2v downward to a relative velocity of 2v upward, and since the basketball is going upward at v, this means the total velocity of the tennis ball is 3v relative to the ground.
And when you throw an object upward, how high it goes changes as the square of the velocity: throw it twice as fast upward and it goes four times as high.
So the tennis ball ends up going nine times as high as the basketball. That means you can drop the two, say, one and a half feet off the ground, and the tennis ball will smack the ceiling (unless you have a particularly high ceiling).
Of course, there were some simplifying assumptions made here, but the end result isn't going to be horribly different in reality. And it's fun to do!