The Nofollow tag was introduced by Google sometime in 2005 as measure to prevent the ever-rising blog comment spam. People were complaining, so Google thought an "off switch" of sorts would be the best course of action.
What the Nofollow tag does is if it is applied to an outgoing link, then no pagerank will be passed along. Effectively, the link is useless in terms of SEO.
However, it is still good practice to obtain Nofollow links, as it is a natural part of link-building.
Don't believe someone who says you should apply Nofollow on all your out-bound links on your site. You won't "leak" any "juice", trust me.