Tip: Are you a non-native English speaker? I have just finished creating a 
Web AppLie, lay, lied, laid, layed… Does it even matter? We understand each other anyway, right? In fact, it does matter. Using an incorrect form increases the risk of misunderstanding at best, and it may make you sound uneducated.
The difference between “lie” and “lay” is actually not so hard to understand:
to lie somewhere = to be located somewhere OR
to lie somewhere (2) = to be in a horizontal position somewhere
Do you see the difference? You can only lay something (including eggs, if you are a hen), but you cannot lie it, and something can lie somewhere, but it cannot lay there. A couple of examples:
Please, lay the book (down) on the table. The eggs lie in a basket.
The book lies on the table.
The same rule applies in the present progressive tense:
The second sentence is incorrect, unless you are about to lay an egg. Conversely, if you are laying something, you cannot use “lying”:
Here, of course, we are ignoring the third, unrelated meaning of the verb “lie”, which is
but I believe it is safe to assume that no one will confuse “lay” with “not to tell the truth”.
The confusing past tense
Here’s where things get a little complicated. The past tense of “lay” is “laid”, so no problem there, but the past tense of “lie” (in the sense of “being in a certain position”) is “lay”. Wait… what?
For some obscure reason, the past tense of “lie” is exactly the same word with which it gets confused in the present tense:
Yes, the chicken laid an egg. Did the egg lie in a basket?
Yes, the egg lay in a basket.
(Note that although some people spell “laid” as “layed”, this spelling is generally considered to be an error.) You can clearly recognize the difference in the third person singular:
he lay = he was located somewhere or was in a horizontal position
To make matters even worse, the past tense of “lie” is “lied”, not “lay”, when the meaning is “to tell a lie”:
Going back to our original example with “lying in bed”:
I lied in bed yesterday = I didn’t say the truth when I was in bed yesterday
I’ll leave the interpretation of the second sentence to your imagination.
The past participle
The torture does not end here. We still haven’t covered one case: the past participle (aka “the third form”), which we need in order to form the present perfect. The participles are:
lie (location) → has lain
lie (tell an untruth) → has lied
Fortunately, using the present perfect of these three verbs is relatively uncommon. Here are a few examples (note that “to lay down” is an idiomatic expression meaning, among others, “to establish, to enact”):
He has lain there helpless for weeks. (rare in modern English.)
Have you ever lied to me?
