Peer Review. The process of obtaining impartial opinions from the research and academic community in order to ascertain whether papers submitted for publication in journals are of a sustainable standard.
Referee. An independent expert who assists the editor of a journal in evaluating the acceptability of contributions submitted for publication.
Peer review is a term that generally applies to research articles in scholarly journals.
1. Scholar writes a paper and submits it to a journal.
2. Journal editor sends the paper to other scholars for anonymous review of quality and originality:
3. Editor uses the reviewers' comments and recommendations to accept the paper or to reject it. Most accepted papers require revisions to become a scholarly article.
Taken from http://www.lib.uci.edu/how/tutorials/FindScienceInformation/public/