The lyrics are an oblique look at a relationship, and every line is a metaphor for a situation within that relationship.
When he says "How do you make a magnet? You create a potential," the question he's really trying to answer is "how do I attract [this person] back to me?" Magnetic potential is a technical term used in electromagnetics, but in this case, the potential he's considering is whether the relationship can "potentially" be revived.
Alternately, you can read this as saying that he's the magnet, alternately pulled and repelled, and that he was created as one by the potential of a relationship being dangled in front of him (which perhaps fits better in context --it seems more likely he's criticizing himself as being a "needy" magnet than his lover).
Either way, the key line to understanding this song comes a stanza or so earlier:
One step forward two steps back
They say opposites attract
But they haven't tracked
In my heart shack
This is the connector between the title narrative of the "opposite house", and the specific metaphor of the magnets.