Pagerank sculpting

People think about PageRank in lots of different ways. People have compared PageRank to a “random surfer” model in which PageRank is the probability that a random surfer clicking on links lands on a page. Other people think of the web as an link matrix in which the value at position (i,j) indicates the presence of links from page i to page j. In that case, PageRank corresponds to the principal eigenvector of that normalized link matrix.
No PageRank would ever escape from the loop, and as incoming PageRank continued to flow into the loop, eventually the PageRank in that loop would reach infinity. Infinite PageRank isn’t that helpful so Larry and Sergey introduced a decay factor--you could think of it as 10-15% of the PageRank on any given page disappearing before the PageRank flows along the outlinks. In the random surfer model, that decay factor is as if the random surfer got bored and decided to head for a completely different page. You can do some neat things with that reset vector, such as personalization, but that’s outside the scope of our discussion.
Now let’s talk about the rel=nofollow attribute. Nofollow is method (introduced in 2005 and supported by multiple search engines) to annotate a link to tell search engines “I can’t or don’t want to vouch for this link.” In Google, nofollow links don’t pass PageRank and don’t pass anchortext [*].
So what happens when you have a page with “ten PageRank points” and ten outgoing links, and five of those links are nofollowed? Let’s leave aside the decay factor to focus on the core part of the question. Originally, the five links without nofollow would have flowed two points of PageRank each (in essence, the nofollowed links didn’t count toward the denominator when dividing PageRank by the outdegree of the page). More than a year ago, Google changed how the PageRank flows so that the five links without nofollow would flow one point of PageRank each.

http://www.mattcutts.com/blog/pagerank-sculpting