I want to know what does qarz-e-hasna mean? Is the person taking it, supposed to return it back to his creditor?
The Holy Qur'an uses the word qarz hasanah to connote spending in order to help and assist the religion of God. This assistance can be financial as well as otherwise. Anything that we spend in the way of Allah, in fact, is bestowed by Him. He did not owe us any of these blessings at all. It is only because of His graciousness that He calls it a loan that we spend it His way. He promises to return it to us manifold.
A look at all the places in the Qur'an where the expression has been used it becomes clear that it signifies a loan given with sincerity and devotion. It should be given willingly and with enthusiasm. One should not participate in such works grudgingly not just to show off. Furthermore the money donated should not be taken from the earning by ignoble means nor should the donation be a defective useless asset.
I still have to learn why people started using in the sense you refer to. People usually think that the loan given and returned in easy installments and within flexible time is qarz e hasanah. Whereas the Qur'an says that the aarz hasanah given will be returned many times more than the actual amount.