Engine components and seals wear down and eventually need replacement. An engine-rebuild kit replaces worn items while retaining parts like the engine block and rotating assembly. A complete engine rebuild will entail replacement of the various gaskets, bearings, pistons, piston rings, lifters and other items.
The wear items in modern engines are typically the seals and gaskets that sit between various components. Time, mileage, and poor maintenance may cause these gaskets to slowly degrade and become porous. When that happens, engine performance suffers. The engine may start consuming oil and/or coolant at a higher-than-normal rate (note that some oil consumption is typical on many healthy engines). When head gaskets fail, it causes the engine to overheat and potentially damage engine components.
The majority of items in a rebuild kit replace top-end engine components. The top-end rebuild parts will include bearings, pistons rings, timing chain or belt, oil pump, lifters. Rebuilds also include replacement gaskets for the engine heads, the camshafts, the intake manifold, exhaust manifold, and throttle body.
Bottom-end components are not typically included in a basic or cheap rebuild. But if you are looking at a comprehensive rebuild, it should include new pistons, which will require a re-honing of the cylinder walls to assure proper mating between the new pistons, piston rings and the cylinder block.
It is advisable that the engine block, crankshaft, rods and pistons (the rotating assembly) and the cylinder head be serviced by a qualified engine shop, particularly if the engine has suffered catastrophic damage such as when head gasket fail. These parts need to be cleaned and inspected for cracks or warping.
