Groot (Vin Diesel) sprouts extra limbs and leaves, cocooning his teammates. Groot's protective tree layer shields everyone from death, but he burns up in the process.
Seeing as Groot is a tree, Rocket salvages one of his seeds and plants it in a flower pot. Groot soon begins growing back as a little chibi-faced sapling.
James Gunn, writer/director of "Guardians of the Galaxy," clarified that Groot died and remained dead, and what grew out of the flower pot was a new character entirely.
“I have reasons in my mind why I think that's the case. I have a whole background for the character, but it is probably not ever going to be shared. But he is a different Groot."