Cash Reserve Ratio (CRR) is the amount of cash banks have to keep with RBI.
Banking companies are required to keep a percentage of their deposits as cash, meaning that in the event you deposit Rs. 100/- in your bank, consequently bank cannot make use of the whole Rs. 100/- for lending or investment cause. They need to keep a part associated with the deposit as cash and may use just the remaining amount for lending/investment. This minimal percentage that is based on the central bank is referred to as Cash Reserve Ratio.
So if CRR is increased , banks have to deposit more money in with the bank and it results in less money creation in economy , and hence people have less money to buy things and they will think twice before paying higher price for something .
So in short CRR is a tool which RBI uses to control the liquidity in country and as Inflation is linked to liquidity, it can be controlled to a great extent.