The meaning of this verse has been hotly debated for centuries. One thing is certain, it does not mean we have the power to justify a person from his sins so he can be born again; only God can do that.
Many people have taught that Jesus is saying, that if we fail to witness to others, we are retaining their sins unto them, and if we do share His love with others, then we are remitting their sins. Although there is truth in this statement, it is not what this verse is teaching. Rather, this verse deals with the temporal effects that sin has on a person’s life. Not only is there a future death penalty for sin, but sin destroys us emotionally and physically in this life too. It is this present destruction that sin brings into a person’s life that Jesus gave us the power to remit.
Through intercession we can remit a person’s sins, so even though he has sown to the flesh and deserves to reap corruption (Gal. 6:8), he will not reap what he has sown. This is done for the purpose of loosing a person from the bondage that Satan desires to hold him in, until he sees the light and repents. This is only a temporary situation and must be continually repeated if the person we are praying for continues to live in sin.
On the other hand, there are times when it is not in the best interest of the individual to remit his sins. There are times when he needs to be made painfully aware of the consequences of his sins. In these cases, we have power to retain his sins; that is, we withdraw our intercession and he reaps what he sows in hope that this will cause him to turn back to God.