How does alexa base their ranking because I have a site that gets 40 visits a day rank in the 325,000 range and other site that get more visitors that are ranked in the millions.
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I don't think so, Alexa can only measure the traffic to browsers, or users, who have the Alexa toolbar installed. You can make your Alexa ranking anything you want as it is very easy to manipulate the Alexa traffic/rankings.
My alexa rating for my site is 102,316. It continues to drop. Just posting on forums where users have the alexa toolbar will get it to drop. Hoping to get below 25k before the end of this year.
sometimes my forums alexa ranking is higher than namepros!
I don't think its a great performance measure but it can be usefull. If someone is trying to sell you a high traffic site or domain and alexa shows no traffic then something is definately wrong.