I have seen all sorts of information posted about the rel="nofollow" attribute on links. Opinions differ as to exactly what the attribute does and there are several different groups with opposing opinions about the attribute that argue their case in various forums on SEO (search engine optimisation).
The one definite fact that everyone agrees on is that Google introduced the attribute for people to use as an indicator that the Page Rank being distributed from the page should exclude that link from those to which Page Rank is allocated. The other major search engines then copied Google but since they don't have Page Rank (since that is named after Google founder Larry Page) they applied it to their equivalent algorithm. These algorithms basically apply a formula that gives the receiving page a rank value based on the number of links to it that pass this rank, the ranks of the pages doing the passing, and the number of links that those pages are passing this rank to. Basically it is a measure of link quantity. Since this type of algorithm was introduced the search engines have reduced the fraction of their overall calculations that are dependent on this value. How much they have reduced it by is also disputed in various forums. My personal belief is that if the significance of this factor hasn't already been reduced to such a small fraction that it can be effectively ignored then it is certainly heading in that direction and any differences in the effectiveness of your SEO if you ignore this factor will be one of timing - how long it takes to achieve a result - rather than one of what result will be achieved.
One thing that I learnt while participating in some of these discussions is that Google clearly state on one of their web pages that they do not follow links that have rel="nofollow" at all. Some people argue that this means that such links are worthless for SEO. The people who make such statements are making several assumptions in stating that including the assumption that Google is the only search engine worth targetting for SEO and that no real people will follow the link either. Basically this group believes Google doesn't follow those links therefore the links have no value where the first half of the statement is true (unless Google have changed their policy since they last updated that page) while the second half of the statement is an assumption.
Another group of people have actually run tests to try to determine for themselves what happens when you add rel="nofollow" to links where that link is the only link to a particular page and that link contains keywords not found anywhere in the page. Some of them have found their page listed in the Google results for those keywords and have come to believe The link has resulted in Google listing the page for that keyword therefore Google must have followed the nofollow link where (assuming they ran their test properly) the first half of the statement is true but again the second half of the statement is an assumption.
These two groups of people are constantly arguing their case and disagreeing with one another because the statements contradict one another - or at least they do if you believe the whole of both statements rather than just the half of each for which their is proof rather than assumption. What they don't consider is that the parts of those statements that are true can be combined together to make one statement where both parts are true and the assumptions made by both groups are shown to be false. The link has resulted in Google listing the page for that keyword despite the fact that Google doesn't follow those links.
Google doesn't have to follow a rel="nofollow" link in order for the link to have value. Not all search engines pay attention to the rel="nofollow" attribute and so it is possible that minor search engines may follow the link and list the page in their results. Real people don't pay attention to rel="nofollow" either and so it is also possible for real people to follow the link, decide that they like what they see, and then add their own lonk to the page. Chances are that these additional links added by others will not have rel="nofollow" and so Google and the other major search engines can follow those additional links in order to find and list the page. There is also nothing in what Google claims that says anything either way as to whether Google will take the link into account if both the page with the link and the page it links to are already in its database. All Google say is that they will not follow the link but if both pages are already listed then Google could take the link into account without needing to follow it (there is nothing to say they do either and so you'd need to judge this on actual results and I haven't heard of anyone who has actually tried to test this).
The real factor in determining the value of a link is not in whether it has rel="nofollow" or not or in the PR of the page that contains the link. The real value of a link is in how relevant the link is both to the page the link is on and the page that it links to. The real factor that controls whether real people will follow a link or not is that relevance.
If you concentrate on building relevant links to your page regardless of whether the pages you add the links to mark them as nofollow or not then real people will follow the links and some of them will help you out by adding additional links to your page. While relevant links with rel="nofollow" will have a different value to those without the tag, they do have a value for SEO and the difference in value is mostly a matter of timing.
If you concentrate on whether the links you add are nofollow or not and disregard the relevance of the links then it will take huge numbers of those irrelevant links to make any significant difference even though the search engines can follow all of the. Sure you might build a high PR (and equivalent for other search engines) but link relevance is a much more important factor in SEO than PR is and so the links that are actually relevant will be the ones that provide most of the value in where your page ends up in the search results.
I'd therefore divide links up into four groups.
There are plenty of people who disagree with me on this and you may do so as well however the information that I have presented here is based both on my own experiences with SEO and the information that I have read on how the Search Engines themselves say that they work and the results that others have achieved (I of course have no way to test the accuracy of the way that others have tested apart from comparing their results to the results that I have achieved from my own tests).
This article written by Stephen Chapman, Felgall Pty Ltd.