The impeller sits behind the pump basket in the part of the pool pump called the impeller housing. The pump basket is in place to prevent small debris from entering the impeller housing, and possibly clogging the impeller. Nearly anything can clog a pump impeller, if it is the right size.
You might need to replace the impeller when:
The pump is making cavitation noises (loud, low grinding noise).
The filter pressure is about half of what it normally reads.
The pump basket does not fill up with water (as seen through a clear lid).
The water in pump is slowly moving, or just swirling.