Power factor is the ratio of real power consumed to apparent power. It is used to measure how well an electric system will meet demand.
As such, power factor is used to measure how well an electrical system will meet demand. When this ratio becomes too small, this can be detrimental to the reliability of an electric system.
Apparent power is the product of current and voltage, which means that it would be higher than the real power. This also means that the apparent power has an upper limit to how much it can be increased. The circuit supplying a load should have a power factor as close to unity as possible.
Power factor correction works by using power-adjusting capacitors at critical points in an electrical system. The capacitors are basically used to reduce the reactive power component of an AC circuit since capacitors provide leading or capacitive power that cancels out lagging reactive power.