Reservoir characteristic of Underground gas storage（UGS）was not only unique, but also complex, which decided the steady and reliability of operation for UGS in the long run, brought the initial building difficulties, and affected the long effective period of economy and important parameters. So learning building and operation mechanism of UGS could help us in the process of actual production. According to the characteristic of UGS, Indoor physical modeling system was developed. The building process and several injection-production cycles of UGS were simulated. Basing on the operation rule of injection-production cycles of UGS and the flow mechanism of gas and water in reservoir, dynamic analysis theory of UGS was built. It was concluded that, porosity and permeability of reservoir, flooded condition, and heterogeneity degree of reservoir determined the building and operation effect of UGS together. Above all, flooded condition and heterogeneity were the main reasons of the long building period, the poor effect of operation and the unrealized program targets. So physical homogeneous reservoir should be used as the main target layer of UGS, and the flooded condition in gas reservoir need to be paid close attention in the long run of UGS .