A reference is simply one person giving their opinion of another's person (the applicant)'s suitability to volunteer in a particular role. They help to give you a more rounded picture of the applicant's strengths and weaknesses, help you to confirm that the applicant is who they say they are; and are an important tool in your efforts to recruit the right people to your organization. References are usually in writing, though they can also be taken over the phone, by Skype, FaceTime or indeed in person.
See also, How do I incorporate character references into my Complyfile?