Refactoring is altering the internal structure of code without changing its external behavior or functionality. It improves code quality by increasing readability and maintainability. Refactoring should be done continuously and in small increments to prevent breaking code. It requires knowledge of the codebase and unit tests to safeguard against unintended consequences. A rewrite completely replaces large portions of code, while refactoring preserves existing code and functionality through disciplined transformations.