I think I happened to answered this same post at
http://www.v7n.com/forums/seo-forum...html#post799616
I'll paste my answer on this here as well
Dofollow - allows the site to pass PR on an outgoing link, thus counting as a vote for the quality of the site in the eyes of google
Nofollow - sends signal to the bot that the link is not vouched for so no PR is passed on. Even with a link being "nofollow", the bot still recognizes the link as valid.