The literature review is important in as much as it shows that you have brought yourself up to date on the current state of knowledge on your chosen topic. This means that time has been taken to review the theory, research findings and best practice of other researchers and writers.
A literature review puts your own work into context with the work done by others on the subject. You are essentially showing where your work fits in with previously published work. It is expected to be a quotation of the work of others with some thoughtful evaluation of your own. A useful note to make on every thing referenced in the literature review is 'what is the value of this?' 'how is it advancing my theory and how does it relate to my research questions?'
The referencing style will usually be that agreed by your particular institution. References must contain enough information for a reader to be able to locate the source in a library. All statements, opinions, conclusions taken from another writer's work must be acknowledged. It is acceptable to discuss whether what one has read is superceded by other research.
At the start of the literature review set out standard theoretical works and general background information. As the review proceeds start to focus more on the exact topic and use more up to date information with a particular view to detailing current understanding and practice, this should then lead nicely into your own work.
The literature review will also help identify if there are any gaps in knowledge on your topic and also ensure that you are not unneccessarily duplicating work that has already been done.