The process of buying or selling portions of a portfolio to bring it back in line with its original target asset allocation, after market movements have caused some holdings to grow faster or slower than others.
If you start with a 50/50 split between two funds and one grows much faster than the other over a year, you might end up at 65/35 without doing anything — the winner naturally becomes a bigger share just by outperforming. Rebalancing means trimming the winner and topping up the laggard to get back to your original 50/50 target, which keeps your risk level where you originally intended instead of drifting wherever the market happens to push it.
Rather than selling anything, many investors rebalance just by directing new contributions toward whichever part of the portfolio has fallen below its target — no selling required, and no tax consequences in a non-registered account.