According to Charmaz:
"Grounded theory refers to a set of systematic inductive methods for conducting qualitative research aimed toward theory development. The term grounded theory denotes dual referents: (a) a method consisting of flexible methodological strategies and (b) the products of this type of inquiry. Increasingly, researchers use the term to mean the methods of inquiry for collecting and, in particular, analyzing data. The methodological strategies of grounded theory are aimed to construct middle-level theories directly from data analysis. The inductive theoretical thrust of these methods is central to their logic. The resulting analyses build their power on strong empirical foundations. These analyses provide focused, abstract, conceptual theories that explain the studied empirical phenomena.
Grounded theory has considerable significance because it (a) provides explicit, sequential guidelines for conducting qualitative research; (b) offers specific strategies for handling the analytic phases of inquiry; (c) streamlines and integrates data collection and analysis; (d) advances conceptual analysis of qualitative data; and (e) legitimizes qualitative research as scientific inquiry. Grounded theory methods have earned their place as a standard social research method and have influenced researchers from varied disciplines and professions.
Yet grounded theory continues to be a misunderstood method, although many researchers purport to use it. Qualitative researchers often claim to conduct grounded theory studies without fully understanding or adopting its distinctive guidelines. They may employ one or two of the strategies or mistake qualitative analysis for grounded theory. Conversely, other researchers employ grounded theory methods in reductionist, mechanistic ways. Neither approach embodies the flexible yet systematic mode of inquiry, directed but open-ended analysis, and imaginative theorizing from empirical data that grounded theory methods can foster. Subsequently, the potential of grounded theory methods for generating middle-range theory has not been fully realized."
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For those of you who read Estonian, Marie Štefanová from Zlín, Poland, has translated the above English text into Estonian.
Charmaz, Kathy. "Grounded Theory." The SAGE Encyclopedia of Social Science Research Methods. 2003. SAGE Publications. 24 May. 2009.