Rebuilding an engine is pretty much what it sounds, you are reworking it to pretty much be in factory new condition. Honing, maybe overboring and honing, the cylinders, replacing the piston rings, replacing the bearings, possibly machining parts back to spec, rebalancing parts, replacing seals, lots of fun stuff.

The benefit of the mess is that in the end you basically have a brand new engine.

Lots of special tools are needed. Calipers, feeler gauges, all basic hand tools, piston ring grove cleaners, a ring compressor, a balancing machine, etc.

No, an average person can't do it. I know guys who have been in to restoring and reworking cars for years who still leave a lot of the rebuilding procedure to professionals. Some operations require some serious machinery. An average Joe can do a lot of the stuff, though.