On Tuesday, Matt Cutts posted a post in Google Groups which spoke in length about, 'Appropriate uses of nofollow tag'. This was basically in response to Administrator Aaron's question, 'What are some appropriate ways to use thenofollow tag other than to protect against blog comment spam?'

Brief explanation of the noFolow attitude on links

“The nofollow attribute is just a mechanism that gives webmasters the ability to modify PageRank flow at link-level granularity. Plenty of other mechanisms would also work (e.g. a link through a page that is robot.txt'ed out), but nofollow on individual links is simpler for some folks to use. There's no stigma to using nofollow, even on your own internal links; for Google, nofollow'ed links are dropped out of our link graph; we don't even use such links for discovery. By the way, the nofollow meta tag does that same thing, but at a page level.

So nofollow as a link attribute causes Google to drop those links out of our link graph. If you have a nofollow link from page A to page B, we won't crawl via page A's link to discover page B. Note that we may still find page B via other links around the web, though.

What are some appropriate ways to use the nofollow tag? One good example is the home page of expedia.com. If you visit that page, you'll see that the "Sign in" link is nofollow'ed. That's a great use

of the tag: Googlebot isn't going to know how to sign into expedia.com, so why waste that PageRank on a page that wouldn't benefit users or convert any new visitors? Likewise, the "My itineraries" link on expedia.com is nofollow'ed as well. That's another page that wouldn't really convert well or have any use except for signed in users, so the nofollow on Expedia's home page means that Google won't crawl those specific links.

Most webmasters don't need to worry about sculpting the flow of PageRank on their site, but if you want to try advanced things with nofollow to send less PageRank to copyright pages, terms of service, privacy pages, etc., that's your call.”

To know more about how Google deals with noFollow etc, see Matt Cutts's interview SEOmoz and Stone Temple.