Here's a graphic example of condensation happening in a wall:
The diagram above shows a typical wood frame construction section view with fairly basic layers:
Note that around layer #4, 5 and 6, our assembly is experiencing moisture as the dew point is on the warm side of the sheathing. This could be happening because of air leakage and transported moisture through the assembly.
The water droplets in the diagram represent condensation. The point in temperature where moisture laden air (vapour) changes to condensation (water) is called the Dew Point.