Note: This is my rough understanding on how it works while on an hourly wage. I only did this for a couple of years, so I'm not 100% sure of the accuracy.

Basically it goes like this: On top of what you earn, a certain percentage (11%, I think. Not sure) is NOT paid out to you every month, but set aside by your employer. But you get it next year instead so that you can take time off an still have money at hand. It's common to have this paid out in June, but you can choose a different month if you want to. The minimum vacation time you need to take out is three weeks - if you don't take your three weeks, you forfeit parts of your vacation pay. You're entitled to take out more vacation days (don't remember how much), but it doesn't result in any more vacation pay, so if you're short on cash, it's better to just work instead.

Now my situation is very different. For starters, I am doing reasonably well financially. Secondly, my contract explicitly states that there is no vacation pay involved, but I get an extra 20% as "compensation" instead. And I'm on a fixed monthly wage, no matter where I am and what I do. I take out vacation days whenever I feel like it without problem - worst case scenario is that I have to be available to assist via phone in case something stupid happens at work.

payed

*paid

If the bot from The Other Place is correct, "payed" is only for nautical ropes or something.