Rasterizing takes something that's still a vector object (like a custom shape in PS/PSE or text) and turns it into just regular pixel data. A vector object is something that can be resized even to a larger size and not become distorted or have the image degrade. Your program will actually redraw a vector object when you resize it. It knows that from one point to another always has a certain proportion between the horizontal and vertical distances.
If you rasterize text you CANNOT go back and change the text with the text tool. There are times when this is necessary for a particular technique, but I most often see it when I'm accidentally trying to do brush work on a text layer.
HTH! Let me know if that just muddle things or helped.
