It's often used in words related to:
* Mental processes: Psychology, psychoanalysis, psychopathy, psychic
* The soul or spirit: Psyche, psychosomatic
* The mind's influence on the body: Psychogenic, psychosomatic
For example:
* Psychology: The study of the mind and behavior.
* Psychic: Relating to the mind or spirit, especially the ability to perceive things beyond the normal senses.
* Psychosomatic: Relating to the interaction between the mind and body.
So, whenever you see "psy" at the beginning of a word, it's a good indicator that the word is related to the mind, soul, or mental processes.