How should I approach the question "Explain the formation of a waterfall"?

This is quite a common question, and knowing how to tackle it can be a great way to scoop up marks. This answer hits each of the points needed for full-mark answer:
Waterfalls form in upstream areas where the river flows over overlying bands of hard and soft rock. The softer rock (e.g. sandstone) is eroded at a faster rate than the harder rock (e.g. dolerite or granite). The active erosive processes are hydraulic action when the force of the water mechanically weathers the river bed and banks) and abrasion or corrasion (when bedload rock material held in the river weathers the river bed and banks). These processes cause the band of softer rock to be worn away and removed more quickly than the overlying harder rock, and an overhang of hard rock is formed. Because it is unsupported, the overhang eventually collapses. A plunge pool forms at the base of the waterfall due to the erosive action of the collapsed material and the hydraulic action of the river flow. Turbulent water in the plunge pool causes undercutting. The process repeats, and the waterfall retreats upstream. Over time, this can lead to the formation of a gorge.