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Call by value is where the argument value is copied to the formal parameter, which is then passed to the function. While the function is executing, it can see the copy of the argument, and it can modify it, if desired, but since it is a copy, it cannot modify the original argument.

Call by reference is where the argument's address (or some kind of reference to it, see the clarification below) is copied to the formal parameter, which is then passed to the function. While the function is executing, it can see the original argument, and it can modify it, if desired.

Note that, formally, C and C++ are always call by value. When we use so-called call by reference semantics, whether it is explicit like in C, or implicit like in C++, we are simply treating the address of the argument as the value that is copied, but when you get into the nitty gritty details of the calling sequence, it is always call by value.

As a clarification, because terminology is critical here, what we do in C and C++ is actually call by value or call by address, not call by reference. The distinction is important when you get into managed heap languages like Java and .NET, where the formal parameter is actually a reference handle to some object in the heap, and not actually a value nor an address.

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Q: What are call by value and call by reference?
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