From VASP Wiki

The POTCAR file essentially contains the pseudopotential for each atomic species used in the calculation. If the number of species is larger than one, one simply concatenates the POTCAR files of the species. On a UNIX machine you might type the line

cat ~/pot/Al/POTCAR ~/pot/C/POTCAR ~/pot/H/POTCAR > POTCAR

to concatenate three POTCAR files. The first file will correspond to the first species in the POSCAR and the INCAR file etc.

Mind: It is a frequent error to give the wrong ordering in the POTCAR file!

For VASP version ≥ 3.2, the POTCAR file also contains information about the atoms, i.e., their mass POMASS, their number of valence electrons ZVAL, the energy of the reference configuration for which the pseudopotential was created, etc. If tags for the mass and valence exist in the INCAR file, they are checked against the parameters found in the POTCAR file, and error messages are printed. The POTCAR files also contain a default energy cutoff (ENMAX and ENMIN); therefore, it is no longer necessary to specify ENCUT in the INCAR file. The value in the INCAR file overwrites the default in the POTCAR file. For POTCAR files with more than one species, the maximum cutoffs (ENMAX or ENMIN) are used for the calculation.

Important: The POTCAR file is meant to be used as read-only by the user. There is no standard usage of VASP that requires modifying the POTCAR file. Specifically do not modify the LEXCH tag in the POTCAR file: VASP recalculates the exchange-correlation energy inside the PAW sphere using the functional specified in the INCAR file and corrects the atomic energies. For this to work properly, the original LEXCH tag must not be modified in the POTCAR file.

To decide which potentials to use in your calculations visit our list of available PAW potentials