PageRank is a link analysis algorithm from Google that assigns a numerical weighting to each element of a hyperlinked set of documents, with the purpose of “measuring” its relative importance within the set. Google use PageRank as one of many criteria to determine the rank in Search Engine Result Page.
Google describes PageRank: PageRank relies on the uniquely democratic nature of the web by using its vast link structure as an indicator of an individual page’s value. In essence, Google interprets a link from page A to page B as a vote, by page A, for page B. But, Google looks at more than the sheer volume of votes, or links a page receives; it also analyzes the page that casts the vote. Votes cast by pages that are themselves “important” weigh more heavily and help to make other pages “important”.
Basically the PageRank measures by looking at internal and external link of a website. For more information, open: http://www.google.com/corporate/tech.html