Peer review is a process that journals use to ensure the articles they publish represent the best scholarship currently available. When an article is submitted to a peer reviewed journal, the editors send it out to other scholars in the same field (the author's peers) to get their opinion on the quality of the scholarship, its relevance to the field, and its appropriateness for the journal.
Scholarly vs. Peer Reviewed
All peer reviewed articles are scholarly articles. However, not all scholarly articles go through a peer review process. You may need to clarify with your instructor about whether or not they are requiring you to use only peer reviewed articles.