Amazon.com: How collaborative filtering works
Here is a really interesting article (warning: pretty technical) on how the Amazon.com recommendation engine works.
At Amazon.com, we use recommendation algorithms to personalize the online store for each customer. The store radically changes based on customer interests, showing programming titles to a software engineer and baby toys to a new mother. The click-through and conversion rates — two important measures of Web-based and email advertising effectiveness — vastly exceed those of untargeted content such as banner advertisements and top-seller lists.