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Power Factor
In AC systems, "Power Factor" is the ratio of volt-amps to watts. To get volt-amps, you also multiply volts times amps. With a resistive load, such as an incandescent lamp, volts times amps equals watts. All of the power gets dissipated heating up the lamp filament to make it glow. In this case, volt-amps is equal to watts, giving a ratio of 1:1, or 100%. With inductive loads like transformers, electric motors, fluorescent lamps, etc., there is very little resistance. Something called "reactance" limits current flow. Larger currents flow with little power being dissipated. With a power factor of 50%, double the current would flow. For example, a 40 watt incandescent lamp draws 0.33 amps. (40 watts / 120 volts = 0.33 amps) This bulb, being a resistive load, has a power factor of 100%. A single tube fluorescent lamp rated at 40 watts may draw double the current of the 40 watt incandescent, but still only use 40 watts of real power. This fixture has a power factor of 50%.

Additional Input from Contributors:
  • Power Factor, simply put is a % of how efficiently the AC power is being used.
    THIS DOESN'T MATTER IN HOUSEHOLD ELECTRICITY. If a factory has a Power Factor of 95%, then it will draw 105% of the current it would draw if it were at 100%, or a Powerfactor of 1 (also called unity).The electric companies charge large industrial customers more for inefficient systems, i.e. Power Factor lower or higher than 1 (100% efficient). They do not charge individual homes for this, so you can't save money by correcting your power factor.
  • It's a ratio of AC volt-amperes to AC watts
  • Electrical meters for homes measure only resistive (real, apparent, or actual) power. They do not measure reactive power.
  • In a study of alternating current (that which supplies our homes and businesses in the United States), it will be observed that there are alternating waves of both voltage and current. In a circuit with purely resistance load, the waves of current and voltage are in exact phase relationship to each other. This means that when the voltage is at its peak, the current flow is at its peak as well. An inductive load (that is, a coil) causes the current wave to lag or fall behind the voltage wave, so that the peak current flow is some time after the voltage wave is at its peak level. A capacitive load (that is, a capacitor) causes the current wave to lead or advance ahead of the voltage wave, so that the peak current flow is some time in advance of the peak of the voltage wave.The consequence of this is that the AVAILABLE REAL POWER is the relationship between the current and voltage waves.
  • Resistive circuits have a power factor of 1.0, or unity, because the waves are in phase. The more out of phase the relationship between voltage and current, the less efficient the use of available power, the more "waste" energy.The less efficient the use of energy, the larger the size of transmission and generating equipment required to provide for energy needs and the more costly the operation of utilization equipment.
  • Power Factor is the relationship between Current and Voltage in an electrical supply With a power factor of 1 power equals Volts multiplied by Amps (I=VxA)

Also see the related Question WHAT IS REACTIVE POWER? by clicking on the link below:
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