A no-follow link is used when a website does not want to pass search engine authority to another webpage. It tells search engine crawlers not to follow or pass credit to linked websites to avoid spammy content or inadvertently violating webmaster guidelines.
To varying degrees, the no-follow attribute is recognized by all major search engines, like Google, Yahoo, and Bing. Not all links (and linking domains) are created equal, and a no-follow attribute helps avoid any foul play. Keeping your link quality high will help avoid this.