Real rate of return is the annual percentage of profit earned on an investment, adjusted for inflation. Therefore, the real rate of return accurately indicates the actual purchasing power of a given amount of money over time.
The famous Fisher equation captures the relationship between nominal and real rate of return under inflation:
Real return = Nominal return - Inflation rate
For example, assume a bond pays an interest rate of 5% per year. If the inflation rate is currently 3% per year, then the real return on your savings is only 2%.