Reference types actually hold the value of a memory address occupied by the object they reference. Consider the following piece of code, in which two variables are given a reference to the same object (for the sake of the example, this object is taken to contain the numeric property 'myValue').

Code: CSharp
object x = new object();
x.myValue = 10;
object y = x;
y.myValue = 20; // after this statement both x.myValue and y.myValue equal 20

This code illustrates how changing a property of an object using a particular reference to it is reflected in all other references to it. Note, however, that although strings are reference types, they work rather more like value types. When one string is set to the value of another, eg

Code: CSharp
string s1 = "hello";
string s2 = s1;

Then s2 does at this point reference the same string object as s1. However, when the value of s1 is changed, for instance with
Code: CSharp
s1 = "goodbye";

what happens is that a new string object is created for s1 to point to. Hence, following this piece of code, s1 equals "goodbye", whereas s2 still equals "hello".

The reason for this behaviour is that string objects are 'immutable'. That is, the properties of these objects can't themselves change. So in order to change what a string variable references, a new string object must be created.