This chapter explores the physical aspects of power factor in depth. Unlike many other electrical engineering books, in this text, the author explains the otherwise abstract concept of power factor from multiple perspectives, supported by simple, easy-to-visualize, analogies. If one explanation doesn’t comport with the reader’s comprehension, the other perspectives are likely to “click.” This chapter illustrates the difference between lagging power factor and leading power factor and shows how either one can result in unfavorable consequences. The potential economic benefits that can be derived from improvement of power factor in AC systems are explained and demonstrated. The ramification of low power factor on the energy productivity, energy cost, and the life of electrical equipment are explained in depth. This chapter concludes the power factor discussion with the presentation of conventional alternatives for power factor improvement.