Varactor diodes are P-N junction diodes that change their capacitance based on the applied bias voltage. This property allows them to be used to change the frequency or phase of electrical circuits. The key parameters that determine a varactor diode's performance are its junction capacitance, quality factor (Q), and how the capacitance changes with voltage and temperature. High quality varactor diodes have a sharp breakdown voltage, low leakage current, and a Q that remains high even at high frequencies, allowing them to be used in applications like voltage-controlled oscillators and tunable filters.