How a nofollow link works
Ordinarily a link is a vote: part of the linking page’s standing travels to the page it points at. A nofollow attribute on that link asks search engines to leave the vote behind. The link still works for a visitor, still appears on the page and can still be clicked; it simply carries a note saying the publisher does not want to endorse the destination.
There are now three related values rather than one. Sponsored marks a link that was paid for or placed as part of an advertising or affiliate arrangement. UGC marks a link created by users — comments, forum posts, profiles. Nofollow remains the general-purpose value for anything you do not want to endorse. Google treats all three as hints it takes into account rather than as absolute instructions, so a marked link is not guaranteed to be ignored, and an unmarked one is not guaranteed to count.
Why nofollow links matter
Applied to links leaving your site, they are a compliance tool. Search engines require paid placements, sponsorships, affiliate links and advertorials to be marked; selling links that pass credit is a policy breach that can end in a manual action. Marking them is not a courtesy, it is the rule.
Applied to links pointing at you, they are worth far more than their reputation suggests. A nofollow link from a news site, a directory a customer actually uses, a supplier’s page or a social profile still sends visitors who can become enquiries, still puts your brand in front of people, and still appears in the wider picture search engines build of who mentions you. Judging an incoming link only by whether it passes credit ignores most of the value it has.
Common mistakes with nofollow links
The first is confusing it with noindex. Nofollow governs the credit that travels along a link; it says nothing about whether a page can be indexed. A page reached only by nofollow links can still be discovered and indexed by other routes, so if you need something kept out of search you need a noindex directive instead.
The second is defensive over-marking — nofollowing every outbound link in the hope of hoarding value. Linking generously to genuinely useful sources is part of how a page demonstrates that it is well researched, and hoarding buys you nothing. The third is refusing perfectly good placements because they are nofollow, which usually means turning down real referral traffic on a technicality. The fourth is the reverse: leaving paid and affiliate links unmarked, which is the one version of this mistake that carries a penalty.
How to act on it
Set a simple internal rule. Anything paid for, exchanged or affiliate-linked gets sponsored. Anything a visitor or member submits gets ugc, applied automatically by the platform. Anything you are citing but not vouching for gets nofollow. Everything else — the sources that genuinely support your writing — stays as a normal link.
Then check what your site is doing now, because most sites are already inconsistent. Crawl the site and list outbound links by attribute, look at whether your comment, forum and profile fields add the right value by default, and correct the templates rather than individual pages. When you are assessing incoming links, record the attribute but judge the placement on whether real people will see it and click it — that mix of credit and referral value is what a sensible link building approach is built on.