Basically, at increment 0, each page starts with the same amount of pagerank. Then between each step, the new PR of each page is calculated depending on the amount of links to this page in google's index, on their respective PRs, and on the number of links on these pages. The algorithm eventually converges, which gives the PR one can see on the google toolbar.
The PR is used as an indicator of a site's importance. The more important (read, high PR) sites link to you, the higher your PR.
Note that PR is logarithmic, meaning that a link from a PR8 page will be equivalent for hundreds of PR3 links.
Note as well that PR is only one in many factors influencing your site's rankings, others including, on-page content, and inbound links anchor text. A high PR without a well-thought keyword strategy may not bring much traffic.
Note finally that the PR you see on the toolbar is updated only once in a while (it's generally a couple weeks/months out of date), and that it is rounded down (the number not changing does not mean your actual PR did not change).
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Tags: google, traffic, google toolbar, algorithm, web page, search engine results, anchor text, parameters, inbound links, page content, score, increment, couple weeks
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