Power Factor (or cos θ) is a measurement of the quality of the power. Some industrial utility customers are penalized if they negatively influence the Power Factor of the system.

A perfect Power Factor (1.00) is when the voltage sine wave and the amperage sine wave are in perfect alignment on top of each other. When the voltage and amperage sine waves are off of each other then you have less than perfect Power Factor. When voltage is leading amps it is considered leading (Inductive or L), when voltage is lagging amps it is considered lagging (Capacitive or C) 

Energy in AC systems is actually measured as volts x amps x power factor = watts This is contrary to the commonly held perception that it is volts x amps = watts (this is only for DC systems, or AC systems with a perfect power factor of 1.) 

More information on Wikipedia, This Article, And this page showing volts x amps x power factor = watts