how does google's algorithm work?

Matt Cutts, head of Google's Webspam team, mentioned in one of his videos in GoogleWebmasterHelp that google has more than 200 variables or parameters that are taken into consideration in scoring or ranking all web pages on the web.

Quoated From The Video: http://www.youtube.com/watch?v=muSIzHurn4U

"We have over 200 signals in our scoring to try to return the most relevant, the most useful, the most accurate search result that we can find."

As it is impossible to know the exact parameters and the exact formula developed by Google, we will be discussing the most important parameter, or in other words the backbone of the algorithm.

Google had adopted a very dynamic and revolutionaly idea for evaluating web pages on the world wide web. The idea is driven by a smart democratic approach. Why is it democratic? Because it counts for every link on the web. Why is it smart? Because it does not treat all links equally. Important Pages' votes are of higher value than that of insignificant pages.

Putting those words into a formula, a pagerank could be defined as follows:

If page px has n pages (p1, p2 ... pn) which point to it, then PR(pn) is the page rank of page pn and C(pn) is the number of pages that page pn links to.

d is the damping factor, and it accounts for the probability of a user who is on page px to go to page py where page px links to page. d is considered to be equal to 1.

Having explained the above, the formula used to calculate the rank of a certain page becomes: