Faraday's Ice Pail Experiment demonstrates electrostatic induction by illustrating how a charged object influences the distribution of charge in a nearby conductor. In this experiment, a charged object is placed inside a conductive pail, leading to a measurable charge on the exterior of the pail, which is indicative of induced charges that redistribute themselves due to the presence of the external electric field. This setup highlights key principles of electrostatics, including grounding and the behavior of conductors in an electric field.