Alexa's ranking system tracks the popularity of internet sites around the world. It bases its ranking schema on the level of traffic each site receives from the number of individuals that check out a site by having the Alexa Toolbar installed. They describe it this way: The traffic rank is based on three months of aggregated historical traffic data from millions of Alexa Toolbar users and is a combined measure of webpage views and users reach. As a first step, Alexa computes the reach and number of web page views for all websites on the World wide web on a daily basis. The main Alexa traffic rank is based upon the geometric mean of these two amounts averaged over time so that the rank of an internet site reflects both the number of individuals who visit that site in addition to the amount of pages on the site viewed by those individuals.
A site's Alexa Rank suggests precisely how popular that site is, based upon the number of site visitors over the last 90 days. This is a top-down rank, with 1 indicating the most preferred address, and greater numbers suggesting less preferred websites. For example, EzineArticles currently has a rank of 131, suggesting there are only 130 websites more prominent than them. At the time of this writing, there are ~ 18 million sites ranked by Alexa.
It ought to be noted that Alexa is able to only collect traffic data from users who have set up the Alexa Toolbar software; because not everybody has or wants this software program, it necessarily follows that Alexa cannot give a complete picture of a site's traffic. They themselves have stated that just the top 100,000 ranks can be considered truly precise; sites rated above 1 million don't obtain enough Alexa-enabled traffic for their positions to be statistically meaningful. This can be demonstrated by setting up the Toolbar, visiting a website with very poor positioning (someplace in the millions), and hitting the browser's refresh button repeatedly - such a website's Alexa positioning would improve considerably within minutes, but that cannot be taken into account an indication of their typical traffic patterns.
Additionally, because the Toolbar collects information pertaining to the websites gone to by individuals and delivers this information "home" to Alexa, lots of vendors such as Symantec and McAfee categorize the Toolbar as adware, spyware, or various other possibly undesirable programs. Not everyone wants this kind of software program on their computer system due to privacy, which restricts Alexa's audience further. For people interested in search marketing there are better tools out there but from a straight popularity standpoint Alexa is very useful.