Cross dressing is when a person (most frequently men) dresses in the clothing of the opposite gender. Since this form of behavior goes against prevailing established heterosexual social norms involving dress codes for women and men, it does not necessarily suggest transgender identity. In fact, most people who cross dress do not have the desire to be known as a member of the opposite sex, or live their lives as a member of the opposite sex.
Cross dressing is actually part of a fantasy, and the act of dressing reflects that fantasy. The fantasies are manifold, and could range from a person's (again, mostly heterosexual men) desire to look and feel beautiful and exquisite, or giving outlet to one's suppressed femininity (in the case of men cross dressers) or masculinity (in the case of women cross dressers).
There are indeed psychological and emotional benefits to cross dressing, or else the behavior would not be performed habitually. Some cross dressers talk about the sense of release from occupational pressures when dressed up as a woman, as well as a relief of tension resulting from the pressures and routine of everyday male life.
The phenomenon of cross dressing is largely a socially or culturally determined one. For example, in Western society, it is not uncommon for women to wear male pants. Women who wear them are not frowned upon, and it is not seen as cross-dressing. In some cultures, however, men have traditionally worn skirt-like garments such as the kilt or sarong; these are not seen as female clothing, and wearing them is not seen as cross-dressing for men.