Grey water is the water from sinks, baths, washing machines and so on. It has already been in contact with us humans and our germs, and storing it for any length of time requires fairly heavy duty treatment or it will quickly start to smell.
The most suitable use is therefore direct garden irrigation. Reducing the pollutants in grey water makes it more suitable for garden use. Shower or bath water is easy to reuse, as shampoos and soaps are fairly mild and well diluted. Simple kits enable you to divert grey water from your down-pipe. If reusing water from a washing machine, use a low-sodium detergent, as sodium damages plants and degrades soil (liquid detergents usually contain less salt than powders). Avoid phosphorus, as this causes algal blooms if it collects in ponds or rivers. Otherwise, this water has small quantities of other undesirables, such as pathogens or grease. Ex-kitchen water can be very dirty; containing oil, grease, and chemicals. As it’s produced in small quantities anyway, reuse may be unnecessary. For much more detail on all of this, see our Making Use of Grey Water in the Garden tipsheet, or the book Choosing Ecological Water Treatment and Supply.
It's also important to first reduce the amount of grey water you produce. The energy used to heat waterleads to far higher carbon emissions than the small amount of energy needed to treat and deliver mains water to a house. Somaking sure you use hot water efficiently is much more important - for example, showers should use much less water than baths, and fitting spray-head taps and a low flow shower head will make a big difference to water consumption.
As mentioned above, storing grey water is very difficult. It contains bacteria and a nutrient source and is often discharged warm, giving an ideal situation for pathogens to multiply. Commercial grey water recycling systems use disinfectants that are often very energy intensive to produce - and which may cause problems if you have a private sewage treatment system.
Independent studies of systems that treat grey water for reuse in the home have found that their environmental impact outweighs any benefits, and that running costs are higher than UK mains water supply. Given the infrastructure and disinfectant needed, we currently find it difficult to see these systems as environmentally friendly, especially for individual households. This may change as technologies are improved. In other countries they may well be more beneficial than they are in the UK.
If you are building a new home in an isolated area with no mains water or drainage, and your main water source is insufficient for anything other than drinking, cooking and washing, then a composting toilet would be a better way to reduce water use