Shape Transformation

Shape Transformation changes the shape and movement of chakra. Various shapes and/or movements of chakra can determine the size, range and attack power when used.

As explained in chapters 314 and 321 in the manga, Shape Manipulation/Transformation is one of two necessary techniques for creating a jutsu, it's counterpart being Nature Transformation. Shape Manipulation entails the molding and defining of ones chakra into a different form. When explaining about shape transformation to Naruto, Kakashi brings up Chidori as an example; "I use shape manipulation to turn [the Lightning-natured chakra] into an electric flow and determine the power and range of the technique".

Shape transformation is about manipulating chakra to do what you want it to do, altering it's shape for a specific purpose. The Rasengan is described as shape manipulation that has been taken "to the highest possible level", as it relies heavily on Chakra control, and it does not require the use of Hand Seals. By building up on precepts learned during Tree Climbing Practice and Water Surface Walking Practice chakra control exersices, the Rasengan is chakra that has been rotated, building up the power behind the rotation and focusing the spiraling chakra at a certin point, and then compressing down into the shape of a sphere, keeping all the power from escaping and creating the appearence of a outer 'shell' with the movement of chakra spiraling around on inside.

Combining with Nature Transformation
While Form Transformation changes the shape and movement of chakra, Nature Transformation changes the actual nature of the chakra, altering its properties and characteristics. Because of this, a technique like Rasengan can be turned into Wind Release: Rasengan or Wind Release: Rasenshuriken, because of Wind Release being joined with the movement of chakra. The movement, instead of spiraling, turns into millions of minuscule blades, as seen when used against Kakuzu.