Matt Cutts, Google Engineer said at his interview with Eric Enge:
Matt Cutts: Absolutely. So, we really conceive of NoFollow as a pretty general mechanism. The name, NoFollow, is meant to mirror the fact that it's also a metatag. As a metatag NoFollow means don't crawl any links from this entire page.
NoFollow as an individual link attribute means don't follow this particular link, and so it really just extends that granularity down to the link level.
We did an interview with Rand Fishkin over at
SEOmoz where we talked about the fact that NoFollow was a perfectly acceptable tool to use in addition to robots.txt. NoIndex and NoFollow as a metatag can change how Googlebot crawls your site. It's important to realize that typically these things are more of a second order effect. What matters the most is to have a great site and to make sure that people know about it, but, once you have a certain amount of PageRank, these tools let you choose how to develop PageRank amongst your pages.
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Matt Cutts Interviewed by Eric Enge on September 24, 2007
I hope this answers your questions.