It tells the search engines not to follow that link, and to disregard it for SEO purposes. If you see it in a directory, it means the directory owner does not want to pass any search engine benefit on to listed sites.
I've got a bit more on it at NoFollow Nonsense Not all the search engines know about the nofollow, it's Google's initiative as you'll learn if you read Matt Cutts' blog. Here's the official Google page: http://www.google.com/technology/ The idea is that a site owner can't be responsible for all the content so nofollow protects from evil links out, but it also penalises the people who create valued content. You have to decide whether you'd rather penalise the good people or let the odd bit of crap past your moderators.
If I have a directory, how can I tell if nofollow is on or off? How do I change settings in phpld? Thanks.
view the source from your browser. Just right mouse click over the page and then check the html for your link. Don't know about the admin settings for phpLD, though.
If you're asking about phplinkdirectory: System >> Edit Settings >> Payment Free Links - Select No. Selecting "Yes" enables free links, but with a nofollow attribute.
it doesn't matter google doesn't follow only for page rank and yahoo well they do follow and have no PR issue so to with MSN so your cool on 50%
Here's what I've been using: http://www.quirk.biz/searchstatus/ It can highlight all nofollow links. It also tell you the page rank of the website your on.
I don't know about that tool, but usually you have to view the source anyway to check that they're not using redirects (which can be masked by mouseover javascript), that there isn't a meta tag stopping indexing and that there aren't other onpage nasties, like css or javascript which might reduce the indexability of a page.
Your right, the only way to know for sure is to check the source. But here's another problem, what if a website blocks the whole page in the robots.txt file? PS, just a warning about the tool, it has to phone home to get the page rank data. So if your worried about privacy, be careful.
Again - that's a show stopper and the only way to check is by directly calling the page. They're not hard to read. Here's an article on my blog which may be of interest: Link Exchanges - the novice version