What is power factor when talking about electricity distribution?

Power factor is the ratio of real power over total power, where total power includes the vector sum of real and reactive power.

Resistors use real power. Perfect capacitors and inductors store power. In an AC system, capacitors and inductors will begin collecting power as the voltage applied to them increases, but eventually the voltage applied to them will be less than the charge they are already holding, and they will discharge into the circuit. This shows up as a phase shift in current relative to voltage.