When you add pages to your site, and those pages get indexed, you are adding to the total PageRank that exists inside your site. The reason why you might want to cut some internal links (with nofollow) is to better control *where* the PageRank goes.
As Dave points out, it's important to understand all of the implications before you decide to use nofollow internally. I've written a couple tutorial type posts on my blog @
SEO Fast Start, and of course it's part of my book. It's not for everyone, and the impact isn't always very dramatic.
The biggest impact is in "run of site" links to empty or useless pages (e.g. a 'view cart' page on a shopping site) and links from your home page.