In an alternating current system, voltage and current do not always reverse at the same instance in time.

Because they are not always "in phase" with one another, the current can be considered as being made up of two components: one in phase with the voltage and one out of phase with the voltage.

With that being said, the power factor of a circuit is the ratio of the in-phase current to the total current and is most often expressed as a percentage.

Q: SO WHY IS THIS IMPORTANT?

    A: BECAUSE THIS RATIO IS WHAT YOUR UTILITY COMPANY BASES YOUR MONTHLY ELECTRIC BILL ON!

By correcting the Power Factor, you're greatly improving the ratio and, therefore, lowering your monthly utility bill!