Search Engines and the nofollow tag

There has been a lot of speculation regarding how the Search Engines treat the rel="nofollow" tag.I have seen many examples of Yahoo showing these links when you do a backlink check using linkdomain:www.yourdomain.com in Yahoo. This has lead me to believe that the search engine spiders follow links that the tag is applied to and spider the linked to pages. The rel="nofollow" tag shows that your site does not endorse the site that you are linking to and therefore no Pagerank is passed and the link is not used when calculating SERPS.

Do not confuse it in any way with the nofollow in the robots file where the Search Engine spider does not follow the link at all.