You prepare to use an action that will occur outside your turn. Choose a single action or free action ability you can use, and designate a trigger. Your turn then ends. If the trigger you designated occurs before the start of your next turn, you can use the chosen ability as a reaction (provided you still meet the requirements to use it).
If you have an attack penalty from making multiple attacks and your readied ability is an attack ability, your readied ability takes the same attack penalty you had at the time you used Ready. This is one of the few times the attack penalty applies when it's not your turn.