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Paraphrasing means writing someone else's words in your own way yet still keeping the intended meaning. By paraphrasing others' ideas, you will guard against the temptation to copy slavishly from the text you are reading. Effective paraphrasing will include your own ideas supported by research material.
Paraphrasing correctly shows that you have understood the passage you are referencing and can put it in your own words coherently.
Paraphrasing is an alternative to quoting directly, but as the paraphrase is still dependent on someone else's ideas, the source material must be acknowledged according to the required system of referencing in your faculty/school.
Source: CLC staff