Well, I think I have actually been relatively consistent over time which is to say, at best I’ve said, it’s usually a waste of your time, it’s a second order effect you’re much better to spend your time, creating new content that will get links rather than worrying about PageRank sculpting within your own site. So let me just say a little more clearly.
The reason is pagerank comes into your site, it flows through out your site based on the links that you have on your site. If you add nofollow on your internal links, that’s causing your links to drop out of the link graph. They don’t flow PageRank anymore. So instead of the pagerank flowing around naturally on your site, suddenly some of it just sort of evaporates or disappears. So at least for the links within your own site, I would almost always make sure that they flow PageRank that is don’t put nofollow on those links.
Now there can be very, very specific situations where you might not want specific pages crawled. For example, the login page, maybe you don’t want if you’re TripAdvisor or Orbitz, or Expedia or something like that, you might not want Googlebot to come to your login page. Because there is nothing for googlebot to login on. But even then, most of the time, it doesn’t hurt to have the login page and search results. It doesn’t hurt to have your privacy page or your About Us page or whatever. So the vast, vast, vast majority of the time I would say, “Don’t add nofollow on internal links”.
If you want to change your architecture of your site and put some parts of your site closer to the route so that there’s fewer links, so that more pagerank flows there. That’s a great way to change how pagerank might flow within your site. But I wouldn’t use nofollow, because I think that does more harm than good.
by Matt Cutts - Google's Head of Search Quality Team