As far as search engines are concerned, when a link is marked as 'nofollow' a command has been given not to register links on the page for inclusion in their search query results.
Search Engine Results
When you use a search engine to conduct a query or search, it is understood that the website(s) at the top of the search research results page are the most relevant to your query; they hold the most authority. This result is created by the amount of links INTO that website using certain keywords.
On a regular basis, search engines will 'crawl' webpages on the Internet and see which links point to websites using which wording (example below). The websites with the most relevant in-links are considered to have the highest authority, hence being at the top of the search results.
Links In, Links Out
Search Engine Optimization (SEO) is an important part of having a blog or website. You want your webpages to be seen in search engine query results. In-links (links in to your blog) are GOOD! Recommending other webpages (links out to other websites) is GOOD! All these links should be natural 'dofollow' links. Three reasons that some links should be tagged as nofollow are:
- Untrusted content, such as the possiblity of spam links in comments
- Priority on websites where you are required to sign in or register as a member
- Paid links such as advertorial content (as an aside, all paid content should be clearly disclosed to comply with UK law and also for transparency and integrity).
Source: Webmaster Tools Help
Search Engine Optimization
The need for paid links to be nofollow is to prevent such links influencing the search engine query results.
For example, when linking to Geekalicious within a post, a blogger would normally use the word Geekalicious and hyperlink it using www.geekalicious.co.uk
If I wanted Geekalicious to be recognised for a specific search term - maybe 'blogging tutorials' - then I would ask (or even pay) a number of people to link www.geekalicious.co.uk to the keywords 'blogging tutorials'. After a short while, every time someone searched for 'blogging tutorials' the link to Geekalicious would appear near the top of the search results if everyone used a dofollow link.
Link Authority is also weighted by Page Rank. All webpages have a Page Rank ranging from 0 to 10 and this is determined by the number of links into a website. The higher the Page Rank, the more trusted the website is considered to be. Blogs generally have a Page Rank (PR) of 2 or 3, some have attained a PR4 and very occasionally a PR5. You can check your Page Rank here.
Websites with a higher Page Rank, or authority, will push a link recommendation further up search engine rankings, i.e. an in-link from a website with a PR4 is considerably better than an inlink from a website with a PR2, although both are valuable.
How to make a link 'nofollow'
Using the Compose tab, highlight the text to be linked, hit the "Link" command, insert the full URL that you are linking to and tick the "Add 'rel=nofollow' attribute" box.
Install a recommended nofollow plugin and then using the Visual tab, highlight the text to be linked, hit the icon that looks like a chain, insert the full URL that you are linking to and tick the "Add 'rel=nofollow' attribute" box.
<a href="http://www.anywebsitehere.net/" rel="nofollow"><link text></a>
How each search engine reads the 'nofollow' attribute
Each search engine (Google, Yahoo, Bing, Ask) excludes links that have the rel=nofollow attribute however the interpretation varies between each search engine. You can read more about this on Wikipedia.
What happens if paid links are marked as 'dofollow'?
Using a dofollow attribution on a paid link isn't against the law but it does contravene search engine guidelines. You may find that search engines downgrade your website in their searches, it is removed entirely or you lose your Page Rank. If this happens, there is a process to follow which involves changing the paid links from dofollow to nofollow (or removing them completely) and resubmitting your website to the search engines for consideration.