How does google calculate the Page Rank??

Google calculate the page rank of your website by counting each incoming link to your site as a vote. For example, if www.site3.com has an outgoing link to www.site4.com; Google considers the link as a vote for www.site4.com. It’s like if you were commending a reputable company to ur friend- your recommendation strengthens his confidence in that company. 

But Google doesn't rely on the pure count of the links coming to the site in order to calculate the pagerank. The search engine robots analyze the page linking to your site as well. The more relevant the linking page is to the keywords entered, the higher the importance that Google gives to your pages. So, keep this in mind when you are thinking about getting one way links to your site, or organize reciprocal links. 

When analyzing the linking page, Google takes into account the following on-page and off page factors:

• The Page Rank of the link page.
  
• Whether the linking page is on-focus or off-focus. If you have a medical website, an on focus link would be a link from another medical website. A link from a site about Pictures would be considered off-focus. 
  
• The number of outgoing links on the outgoing link page. A page with 500 outgoing links will not be considered as relevant as a page with only 20 outgoing links.
  
• The quality of the incoming links directed at the website of the outgoing link.
  

So, the quantity and quality of links pointing back to your website are the major part of the Google algorithm to calculate the page rank.