It ranks pages rather than entire sites. For instance, if a newspaper made an outrageous error and 50 blogs wrote pages mocking and linking to that error, that particular article would be on the top of the charts for that day. Clearly being highly ranked is not always a compliment, although interesting breaking news often ranks highly.
If an item interests you, you can click through to a list of the blogs linking to it, and to each of the blogs themselves. While it is a good way to pick up on important news you might miss otherwise, it also creates a temptation for bloggers to discuss something already fully discussed in the hope people will click through to their blog. It's not easy - items go quickly up and down the charts, and few people read all or even many of the blogs linking to a particular item.