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From the Catholic Encyclopedia, The Sacrament of Penance (Confession):

As stated above, the absolution given by the priest to a penitent who confesses his sins with the proper dispositions remits both the guilt and the eternal punishment (of mortal sin). There remains, however, some indebtedness to Divine justice which must be cancelled here or hereafter. In order to have it cancelled here, the penitent receives from his confessor what is usually called his "penance", usually in the form of certain prayers which he is to say, or of certain actions which he is to perform, such as visits to a church, the Stations of the Cross, etc. Alms deeds, fasting, and prayer are the chief means of satisfaction, but other penitential works may also be enjoined. The quality and extent of the penance is determined by the confessor according to the nature of the sins revealed, the special circumstances of the penitent, his liability to relapse, and the need of eradicating evil habits. Sometimes the penance is such that it may be performed at once; in other cases it may require a more or less considerable period, as, e.g., where it is prescribed for each day during a week or a month. But even then the penitent may receive another sacrament (e.g., Holy Communion) immediately after confession, since absolution restores him to the state of grace. He is nevertheless under obligation to continue the performance of his penance until it is completed.

It would seem that, given a sincerely contrite disposition, the eternal debt debt is satisfied with no further action.

On what basis (preferably with scriptural founding) does the Catholic Church teach that an act of penance can satisfy the temporal debt of sin?

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The Catechism of the Catholic Church has this to say on satisfaction:

1459 Many sins wrong our neighbor. One must do what is possible in order to repair the harm (e.g., return stolen goods, restore the reputation of someone slandered, pay compensation for injuries). Simple justice requires as much. But sin also injures and weakens the sinner himself, as well as his relationships with God and neighbor. Absolution takes away sin, but it does not remedy all the disorders sin has caused.62 Raised up from sin, the sinner must still recover his full spiritual health by doing something more to make amends for the sin: he must "make satisfaction for" or "expiate" his sins. This satisfaction is also called "penance."

1460 The penance the confessor imposes must take into account the penitent's personal situation and must seek his spiritual good. It must correspond as far as possible with the gravity and nature of the sins committed. It can consist of prayer, an offering, works of mercy, service of neighbor, voluntary self-denial, sacrifices, and above all the patient acceptance of the cross we must bear. Such penances help configure us to Christ, who alone expiated our sins once for all. They allow us to become co-heirs with the risen Christ, "provided we suffer with him."63

The satisfaction that we make for our sins, however, is not so much ours as though it were not done through Jesus Christ. We who can do nothing ourselves, as if just by ourselves, can do all things with the cooperation of "him who strengthens" us. Thus man has nothing of which to boast, but all our boasting is in Christ ... in whom we make satisfaction by bringing forth "fruits that befit repentance." These fruits have their efficacy from him, by him they are offered to the Father, and through him they are accepted by the Father.64

62 DS 1712 (Council of Trent, 1551)
63 ⇒ Rom 8:17; ⇒ Rom 3:25; ⇒ 1 Jn 2:1-2; cf. DS 1690 (Council of Trent, 1551)
64 DS 1691 (Council of Trent, 1551); cf. ⇒ Phil 4:13; ⇒ 1 Cor 1:31; ⇒ 2 Cor 10:17; ⇒ Gal 6:14; ⇒ Lk 3:8.

The Biblical references are [all RSV-CE]:

Rom 8:17 — and if children, then heirs, heirs of God and fellow heirs with Christ, provided we suffer with him in order that we may also be glorified with him.
Rom 3:25 — ... Christ Jesus, whom God put forward as an expiation by his blood, to be received by faith. This was to show God's righteousness, because in his divine forbearance he had passed over former sins.
1 Jn 2:1–2 — If anyone does sin, we have an advocate with the Father, Jesus Christ the righteous; and he is the expiation for our sins, and not for ours only but also for the sins of the whole world.
Phil 4:13 — I can do all things in him who strengthens me.
1 Cor 1:31 — Let him who boasts boast in the Lord.
2 Cor 10:17 — Let him who boasts boast of the Lord.
Gal 6:14 — But far be it from me to glory except in the cross of our Lord Jesus Christ, by which the world has been crucified to me, and I to the world.
Lk 3:8 — Bear fruits that befit repentance, and do not begin to say to yourselves, 'We have Abraham as our father'; for I tell you, God is able from these stones to raise up children to Abraham.

The biblical basis for penance is thus Romans 8:17, the patient acceptance of the cross we must bear to be conformed to Christ who bore his cross for the sin of the world. The penance imposed by the priest is a small suffering in our own life to remind us of Jesus' ultimate sacrifice in his; because of his suffering, he is able to support us in ours. And so, having accepted our own little cross, we might bear the fruits of repentance: the "turning back to God" and the change of life that must engender.

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The way it was explained to me during my formation is like this:

When we sin we wound our soul, driving metaphysical nails into our spirit, as we drive nails into the body of Christ. Mortal sin, do to its choice to reject God outright, leave grievous wounds in our nature.

The absolution of sin is the removal of the nail. However the wounds of our sin may remain, much like we are to seek forgiveness and demonstrate true remorse to those who we wrong, so to does this process help heal the wounds that sin leave behind in ourselves.

Purgatory is for those who leave this world wounded, but have not separated themselves from God. Before one can enter into paradise, these wounds must be healed and our spirit repaired.

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This gives a good explanation, but does not really give the basis for the teaching--biblical or otherwise. –  Narnian Jan 29 '13 at 22:23
    
Yup, and I regret that, but it is what I have at the moment. –  Pyrodante Jan 29 '13 at 22:27
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