Page and Brin founded Google in 1998. Google attracted a loyal following among the growing number of Internet users, who liked its simple design. Off-page factors (such as PageRank and hyperlink analysis) were considered as well as on-page factors (such as keyword frequency, meta tags, headings, links and site structure) to enable Google to avoid the kind of manipulation seen in search engines that only considered on-page factors for their rankings. Although PageRank was more difficult to game, webmasters had already developed link building tools and schemes to influence the Inktomi search engine, and these methods proved similarly applicable to gaming PageRank. Many sites focused on exchanging, buying, and selling links, often on a massive scale. Some of these schemes, or link farms, involved the creation of thousands of sites for the sole purpose of link spamming.
You can confer some of your site's reputation to another site when your site links to it. Sometimes users can take advantage of this by adding links to their own site in your comment sections or message boards. Or sometimes you might mention a site in a negative way and don't want to confer any of your reputation upon it. For example, imagine that you're writing a blog post on the topic of comment spamming and you want to call out a site that recently comment spammed your blog. You want to warn others of the site, so you include the link to it in your content; however, you certainly don't want to give the site some of your reputation from your link. This would be a good time to use nofollow.