PageRank is a ranking system that previously was the foundation of the infamous search engine, Google. When search engines were first developed, they ranked all websites equally and would return results based only on the content and meta tags the pages contained. At the time, however, the PageRank system would revolutionize search engine rankings by including one key factor: a site's

PageRank is a link analysis algorithm, named after Larry Page[1] and used by the Google Internet search engine, that assigns a numerical weighting to each element of a hyperlinked set of documents, such as the World Wide Web, with the purpose of "measuring" its relative importance within the set.

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Please bear in mind that the PR that you see, like in your toolbar, is merely for entertainment purposes: It is weeks behind the latest PR algorithm.

Also:
1) It is weighted more towards link equity (*relevant* links going in and out of your site and equally, *relevant* links in and out of others sites that are linked to your site).

2) The PR is not to be taken literally as it is much akin to the richter scale where an earthquake of 2.0 intensity is actually (and I stand corrected, though you hopefully get my point) 32 times more powerful than that of intensity 1.