tedster - 2:13 pm on Mar 16, 2010 (gmt 0)

what do endorsement means here?

Google wants to consider a dofollow backlink as a "vote" or "endorsement" of the page it links to. As I see it, Matt is saying that they don't want to transfer PR or other link juice through an affiliate link because the link is not freely given -- it is there for financial purposes.

and how Google know the affiliate link as an affiliate?

They don't tell us, but I also don't think it would be too hard to build a list of affiliate sites and see how the tracking is done in most cases. Then only backlinks that don't involve the tracking technology would be treated as true editorial "votes".