PBR allows packets to be forwarded based on criteria other than just the destination IP address, such as source address, application, or packet length. It overrides the normal IP routing table and can be used to implement policies for load balancing traffic across different paths or prioritizing certain traffic types. To configure PBR on a Cisco router, access control lists are created to define matching criteria, route maps are used to specify actions for matched packets including next hops or interfaces to use, and the route map is applied to an interface where traffic will be policy routed.