The James-Lange Theory is that emotions are interpreted based on physiological reactions to events (later replaced by Cannon-Bard theory, which states the opposite). In short, it is the idea that our emotions are felt based directly upon what our body is experiencing as physical sensations. If your body is tensed up, for instance, it would make you feel more anxious or tense.
I think this little example from http://changingminds.org/explanations/theories/james_lange_emotion.htm helps immensely:
Event ==> arousal ==> interpretation ==> emotion
That link can also provide you with several other examples and more information on this theory.
Example: While walking in the woods, you stumble upon a bear. Your heart begins to race and you notice that you are trembling. Thus, you conclude, you must be frightened.