It is about how current draw is in or out of phase with voltage. Purely resistive loads won't affect the phase of the current. However if you have reactive loads like capacitors or inductors your current draw will either have its peak before the voltage has its peak, or after. This leaves you with less power.

In Germany going lower than cosphi 0.9 capacitive or cosphi 0.9 inductive requires special permission from the operator of the electrical grid.

If your installation affects the electrical grid in negative ways they can make you pay when something breaks or switch of your power to protect the grid.

On top of cosphi you also have ripple (basically "overtones" created by non-linear loads like unfiltered switching PSUs). If your THC (total harmonic current) exceeds 5% any power transformers in your net will have significantly reduced lifetime. But German grid operators allow a maximum THC of 15%.

So basically there are many ways how inductive, capacitive or switching loads can "deform" and shift the waveforms of the currents and voltages you are drawing, some of this can have negative effects on your own devices, some of it can have negative effects on the grid. Ideally you have a cosphi of 1 (so neither inductive nor capacitive) and a THC of 0% (no harmonics of the fundamental frequency present in the sine of the current drawn), but in reality you have to stay within what your grid operator allows.

Lower power factor means more voltage drop over distance as well as more power consumed per unit of work. For a AC 120v 20A single-phase circuit that is 100 feet long with a power factor of 1 (electric heat is pf 1, purely resistive) you can use #12 wire. For the same circuit with a very inefficient inductive load (a crappy motor) that has a power factor of .5, you need to use #8 wire, which is 4x larger (cross section area) than #12.

It also requires more power to extract the same amount of work as a more efficient power factor motor. Low power factor equipment wastes electricity and requires more copper.

In practice, motors in the US are generally .75 pf (fractional horsepower) or better, .90 pf by 20 HP, and .95 pf as HP approaches 500. These efficiency standards combined with variable-frequency drives means that new electric motors are pretty efficient at using power to do work.

https://www.energy.gov/sites/prod/files/2014/04/f15/amo_moto...

It's the phase difference between the voltage waveform and the current waveform.

Power transfer is most efficient when the peak current is happening at the peak voltage. As it moves further away, the loss at generation point increases.

Put simply, lower power factors are inefficient. They draw more current, which means the components are either stressed or need to be bigger to compensate.

(This is all a big simplification): DC power is pretty easy to get your head around. In a resistive circuit you have a nice easy P=IV. But for AC circuits that include capacitance or inductance you sometimes get the current out of phase with the voltage. So you end up with "real power", "apparent power", and "reactive power". For some circuits you can balance out these inductive and capacitive loads. In the UK in the past factories that had a lot of motors (inductive loads) would also have big capacitor banks to help balance these out.

Simply put when there is lower power factor, there are higher losses into cables. And It is not always negative power that causes this (as many say). For a bridge rectifier the power is always positive.