The purpose of a literature review is to help ground yourself in the discipline and help you (and your readers) understand your topic in the context of the field or discipline. Note: The expectations for a literature or 'lit' review can vary by discipline; IF in doubt, consult your advisor/professor.
There are some general rules:
A literature review is also a way to inform your own writing. What is the scope of most articles in your discipline? Is the literature oriented toward empirical or qualitiative studies? What are the most common methods? what are the most interesting ones? (Rampel, 2010, among others).
A literature review is not a bibliography, per se. It is not a research paper, although they often contain literature reviews. It does not usually discuss every possible work in the field-- but it should cover the relevant ones.
Literature reviews can be a class assignment, an introduction to a paper or research project, a stand-alone article, or an introduction to a larger work, such as a thesis or dissertation. If in doubt, ask your professor or advisor.
Read the assignment or review your notes to see what is required. Sometimes a specific number of sources is requested.
When you are finished, you should be able to discuss the work of the most prominent authors in some detail, and give a cogent overview.
A literature review is about ideas, concepts, theories and hypotheses, results and projections. It is usually both a summary of what's known and an introduction to the research that you plan to do. It is not an explication of your own research, but you need to know what the evidence is, for and against your hypothesis or argument.
You are close to the end when you start running into the same authors, the names that your professors mention don't make you say "Who?" and you start to feel a sense of command or fluency in the topic. This takes time and effort.