Lithium is mostly used for BP (bipolar). You can look it up to learn more about it, but it's just another med (like an SSRI is used for depression, as an example.)
Bipolar #1 does not require a depressive episode, but often has one. The manic episodes are more extreme than what is experienced in BP2, and may include psychosis (hallucinations, etc.) BP2 does not have any hallucinations or similar, and has hypomanic episodes, which are highs that are less extreme than the manic episodes in BP1. In this regard, "hypomania" could also feel/look like a "normal" mood because it occurs after a depressive episode but is not extreme mania. The thing about BP is that it is cyclical.
Here are some links that may be helpful. If you have other questions you can also PM me. :)
http://en.wikipedia.org/wiki/Bipolar_disorder#Bipolar_I
http://www.nimh.nih.gov/health/publi...te-index.shtml