I can't find the post on another forum I took this from any more, but it provides some good info:
Plain line reactors are simply series inductors placed in all three three-phase legs. They can be placed in the supply leads to the drive or in the motor leads coming out of the drive. Their effect on drive-motor system performance varies significantly depending on which place you put them. In every case, however, being simply inductors, they display a low impedance to low frequencies and higher impedance to higher frequencies, just as you would expect. Since they are inductors, you can expect them also to drop a small amount of AC voltage even at 60Hz.
Reactors are occasionally spec'ed in microhenries but more often are spec'ed in percent. This is highly confusing and leads to no end of trouble and, of course, more snake oil and false claims by the manufacturers. Just for the record, when a reactor is rated in percent, it means that, at its rated voltage and maximum continuous current at its rated frequency (60Hz, of course, for US reactors), it will drop its rated percent of the supply voltage across its terminals. So, by example, if you have a 5% reactor rated for 460V and 5 continuous amps, it will drop 460V times 5% or 23V when it is conducting 5 amps.
When reactors are placed in the supply leads to an inverter, the usual purpose is to prevent high frequency harmonics from the drive getting back into the AC supply grid. This is usually a no-problem deal unless you've got low voltage to start with. In that case, the extra voltage dropped across the reactor at heavy loads can get you into trouble since the drive cannot output more voltage than it gets in. Some other harmonic reduction scheme may be needed for this situation.
When reactors are placed in the motor leads, the usual purpose is to block high frequency components in the drive output pulses from traveling down the motor leads and causing trouble in the motor insulation. This is not usually a problem unless the motor leads get long enough to cause the high frequency components to reflect back from the motor towards the drive where they encounter new pulses coming from the drive. When that happens, the pulses can become additive and the motor insulation sees much more voltage than it should. Of course, the reactors also drop voltage as current passes thru them and you can again get low voltage conditions at the motor although this is not usually a big deal. The bigger problem is on precision speed and torque regulating sensorless vector drives where the drive cannot properly identify motor operating parameters because it can't see the motor accurately thru the reactors. The drive is left to include the reactors in the motor model even tho they don't belong in the model. On open loop or closed loop (shaft encoder feedback) systems this is not a problem.
There are additional complexities with motor lead reactors when you are dealing with motor overspeeds and output frequencies over 60Hz but I think the above will suffice for most users."
Also attached is another white paper that provides more good info regarding line reactors, and dispels much of the myth surrounding them.
-SceneryDriver