Nofollows are a powerful and important tool when thinking about SEO. They are used by adding a rel="nofollow" to a link, for example (courtesy of Wikipedia):
a href="http://www.example.com/" rel="nofollow"
Nofollows should be used to indicate to the search engine that you do not want to pass any authority on to the page the link is pointing to. It either means that the page is one of little importance, or one who you're not necessarily sure you trust and therefore don't want to endorse with a link.
The first case is often done for footer links on your site, or to limit the number of followed links a page has. This is oftentimes mixed up with the practice of "PageRank sculpting" which is a practice that we'll talk about another time and that has unclear value.
The second case is great to employ if you have a site with user-generated content and user-generated links. By no-following things like comments and posts, it discourages spammers to post links from your site pointing to theirs in efforts to boost their own credibility with the search engines. Also, it prevents you from getting penalized by the search engines for (unknowingly) linking to "bad neighborhoods," or sites that are known to be malicious or spammy.
The bottom line? Use nofollows when you point to pages on your site you don't want to pass authority to as well as for most out-going user-generated links that you cannot reliably trust.
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