- You send a piece out to a journal
- The editor reviews it to find one or more suitable referees (people who supposedly have some background in that area)
- The referee goes over the piece with a fine-tooth comb. They make comments/suggestions about everything from the statistical methodology you've used to the writing style to the basic premises of the piece. Pretty much anything is fair game, stopping just short of "you dumb, you ugly, and yo momma dress you funny")
- They write a referee report that can be either clear rejection (i.e. go away or we will taunt you again), revise and resubmit (make the following suggested changes and we'll look at it again) or accept (almost never done on the first round).
- If it's a revise and resubmit, you attempt to make the changes (or at least address the issues raised in some way) and then resubmit it to the journal. The editor sends it back to the referee(s) for another look. Sometimes they even bring in a new referee.
- Steps 4 and 5 can be repeated several times (the record I've heard at a finance journal is 4 rounds).
HT: Mike Munger