A literature review is a written work that:
From these analyses, the writer then offers an overview of the current status of a particular area of knowledge from both a practical and theoretical perspective.
Literature reviews are important because they are usually a required step in a thesis proposal (Master's or PhD). The proposal will not be well-supported without a literature review.
Also, literature reviews are important because they help you learn important authors and ideas in your field. This is useful for your coursework and your writing. Knowing key authors also helps you become acquainted with other researchers in your field.
Look at this diagram and imagine that your research is the "something new." This shows how your research should relate to major works and other sources.
Jonathan Whitfield | Graduate Reference Assistant | 2011-2013