Strings are passed as reference types in .NET.
Reference types place a pointer on the stack, to the actual instance that resides on the managed heap. This is different to Value types, who hold their entire instance on the stack.
When a value type is passed as a parameter, the runtime creates a copy of the value on the stack and passes that value into a method. This is why integers must be passed with a 'ref' keyword to return an updated value.
When a reference type is passed, the runtime creates a copy of the pointer on the stack. That copied pointer still points to the original instance of the reference type.
The string type has an overloaded = operator which creates a copy of itself, instead of a copy of the pointer - making it behave more like a value type. However, if only the pointer was copied, a second string operation could accidently overwrite the value of a private member of another class causing some pretty nasty results.
As other posts have mentioned, the StringBuilder class allows for the creation of strings without the GC overhead.