The first is the relative reactivity of the compound compared with benzene itself. Experiments have shown that substituents on a benzene ring can influence reactivity in a profound manner. For example, a hydroxy or methoxy substituent increases the rate of electrophilic substitution about ten thousand fold, as illustrated by the case of anisole in the virtual demonstration (above). In contrast, a nitro substituent decreases the ring’s reactivity by roughly a million. This activation or deactivation of the benzene ring toward electrophilic substitution may be correlated with the electron donating or electron withdrawing influence of the substituents, as measured by molecular dipole moments. In the following diagram we see that electron donating substituents (blue dipoles) activate the benzene ring toward electrophilic attack, and electron withdrawing substituents (red dipoles) deactivate the ring (make it less reactive to electrophilic attack).

The influence a substituent exerts on the reactivity of a benzene ring may be explained by the interaction of two effects:

The first is the inductive effect of the substituent. Most elements other than metals and carbon have a significantly greater electronegativity than hydrogen. Consequently, substituents in which nitrogen, oxygen and halogen atoms form sigma-bonds to the aromatic ring exert an inductive electron withdrawal, which deactivates the ring (left-hand diagram below).
The second effect is the result of conjugation of a substituent function with the aromatic ring. This conjugative interaction facilitates electron pair donation or withdrawal, to or from the benzene ring, in a manner different from the inductive shift. If the atom bonded to the ring has one or more non-bonding valence shell electron pairs, as do nitrogen, oxygen and the halogens, electrons may flow into the aromatic ring by p-π conjugation (resonance), as in the middle diagram. Finally, polar double and triple bonds conjugated with the benzene ring may withdraw electrons, as in the right-hand diagram. Note that in the resonance examples all the contributors are not shown. In both cases the charge distribution in the benzene ring is greatest at sites ortho and para to the substituent.
In the case of the nitrogen and oxygen activating groups displayed in the top row of the previous diagram, electron donation by resonance dominates the inductive effect and these compounds show exceptional reactivity in electrophilic substitution reactions. Although halogen atoms have non-bonding valence electron pairs that participate in p-π conjugation, their strong inductive effect predominates, and compounds such as chlorobenzene are less reactive than benzene. The three examples on the left of the bottom row (in the same diagram) are examples of electron withdrawal by conjugation to polar double or triple bonds, and in these cases the inductive effect further enhances the deactivation of the benzene ring. Alkyl substituents such as methyl increase the nucleophilicity of aromatic rings in the same fashion as they act on double bonds.