Hi Purpledawn,
I'm coming in in the middle and may not be able to help, but let me try.
Concerning your example of your grandson spilling his drink, cleaning it up, then going back to your chair, that's not really equivalent to what is being explained. Let me try a different visual.
Imagine a water wheel such as would be used in the 1800's to run a grinding mill for grain. There are many historic mills still around, and here's a picture of one (click to enlarge):
Now imagine that all the water we have to drive the wheel is in a water tank, and the tank has a valve that is currently closed. If we open the valve then water will flow from the water tank down the sluice and onto the wheel, thereby making it turn. The water in the tank has potential energy, the potential to do work by driving the wheel.
So let's imagine that we open the valve and let the water drive the wheel. The water flows down the sluice and onto the wheel and the wheel begins to turn. The wheel turns for a while, then the tank runs out of water and the wheel stops turning. All the potential energy in the water that was in the tank has been transformed into kinetic energy when it made the wheel turn (and presumably turned a millstone that ground some grain), and now that water is sitting in the pool below, unable to perform any more work for us. The water has no more potential energy.
In thermodynamic terms we would say that when the water was in the tank that it's potential energy to do work represented a lower entropy level, and that as the water flowed down the sluice and turned the wheel then went into the pool of water that its ability to do work was used up and its entropy increased. The water can no longer be used to drive the wheel because it is below the wheel now instead of above it.
One way this water could do further work is if there is another water wheel further down stream at a lower level. Another way is if we do work by filling pails with the water and lugging the water back up to the tank and pouring it in. After we've expended all this work on the water it will again have a great deal of potential energy in the tank, and we can again open the valve and let the water do work by turning the wheel again.
Hope this helps.
--Percy