Yes, Bing launched one months ago so let's get that out of the way now.
Google's Best Spam Reporting Tool
My big issue, as I said before, this is not a win/win - this is the best spam reporting tool Google has launched to date. Suffering webmasters point fingers at their competitors and friends and blame them for their poor rankings, which Google can use.
Matt Cutts said repeatedly at PubCon, on the video (see below) and in the blog post that you should try not to use it, don't use it, really. Why? One example he said is do not disavow internal links - it can hurt. Right, Google is just using this as a "hint" or "signal" now, like they did with the rel=canonical when that launched, but this will be a powerful signal within 6 months - so be careful if you have to use it.
Will all SEOs use it when they need it? I suspect so. Will some stand up like they did with the nofollow attribute and say - no, we won't use it because it is a form of outing? I suspect so. But 99% will use it in a second if they feel they need it.
How Does The Google Disavow Link Tool Work?
Okay, now that you will likely use it, how does it work? Go to this page (currently not linked within webmaster tools) to see the sites you can disavow links for.
Now pick a site:
Then you will see a warning screen:
Then it will ask you to upload a disavow.txt file:
Here is an example of what a file might look like:
Now the rest of the screens ask you to confirm. Once you do, you can always delete the file - but it can take a long long time for Google to process those requests.
Here is a video from Matt explaining it in 10 minutes:
Here is the basic disavow help page on Google's help content.
Here are some Q&A from the Google blog:
Q: Will most sites need to use this tool?
A: No. The vast, vast majority of sites do not need to use this tool in any way. If you’re not sure what the tool does or whether you need to use it, you probably shouldn’t use it.
Q: If I disavow links, what exactly does that do? Does Google definitely ignore them?
A: This tool allows you to indicate to Google which links you would like to disavow, and Google will typically ignore those links. Much like with rel=”canonical”, this is a strong suggestion rather than a directive—Google reserves the right to trust our own judgment for corner cases, for example—but we will typically use that indication from you when we assess links.
Q: How soon after I upload a file will the links be ignored?
A: We need to recrawl and reindex the URLs you disavowed before your disavowals go into effect, which can take multiple weeks.
Q: Can this tool be used if I'm worried about "negative SEO"?
A: The primary purpose of this tool is to help clean up if you've hired a bad SEO or made mistakes in your own link-building. If you know of bad link-building done on your behalf (e.g., paid posts or paid links that pass PageRank), we recommend that you contact the sites that link to you and try to get links taken off the public web first. You’re also helping to protect your site’s image, since people will no longer find spammy links and jump to conclusions about your website or business. If, despite your best efforts, you're unable to get a few backlinks taken down, that's a good time to use the Disavow Links tool.
In general, Google works hard to prevent other webmasters from being able to harm your ranking. However, if you're worried that some backlinks might be affecting your site's reputation, you can use the Disavow Links tool to indicate to Google that those links should be ignored. Again, we build our algorithms with an eye to preventing negative SEO, so the vast majority of webmasters don't need to worry about negative SEO at all.
Q: I didn’t create many of the links I’m seeing. Do I still have to do the work to clean up these links?
A: Typically not. Google normally gives links appropriate weight, and under normal circumstances you don't need to give Google any additional information about your links. A typical use case for this tool is if you've done link building that violates our quality guidelines, Google has sent you a warning about unnatural links, and despite your best efforts there are some links that you still can't get taken down.
Q: I uploaded some good links. How can I undo uploading links by mistake?
A: To modify which links you would like to ignore, download the current file of disavowed links, change it to include only links you would like to ignore, and then re-upload the file. Please allow time for the new file to propagate through our crawling/indexing system, which can take several weeks.
Q: Should I create a links file as a preventative measure even if I haven’t gotten a notification about unnatural links to my site?
A: If your site was affected by the Penguin algorithm update and you believe it might be because you built spammy or low-quality links to your site, you may want to look at your site's backlinks and disavow links that are the result of link schemes that violate Google's guidelines.
Q: If I upload a file, do I still need to file a reconsideration request?
A: Yes, if you’ve received notice that you have a manual action on your site. The purpose of the Disavow Links tool is to tell Google which links you would like ignored. If you’ve received a message about a manual action on your site, you should clean things up as much as you can (which includes taking down any spammy links you have built on the web). Once you've gotten as many spammy links taken down from the web as possible, you can use the Disavow Links tool to indicate to Google which leftover links you weren't able to take down. Wait for some time to let the disavowed links make their way into our system. Finally, submit a reconsideration request so the manual webspam team can check whether your site is now within Google's quality guidelines, and if so, remove any manual actions from your site.
Q: Do I need to disavow links from example.com and example.co.uk if they're the same company?
A: Yes. If you want to disavow links from multiple domains, you'll need to add an entry for each domain.
Q: What about www.example.com vs. example.com (without the "www")?
A: Technically these are different URLs. The disavow links feature tries to be granular. If content that you want to disavow occurs on multiple URLs on a site, you should disavow each URL that has the link that you want to disavow. You can always disavow an entire domain, of course.
Q: Can I disavow something.example.com to ignore only links from that subdomain?
A: For the most part, yes. For most well-known freehosts (e.g. wordpress.com, blogspot.com, tumblr.com, and many others), disavowing "domain:something.example.com" will disavow links only from that subdomain. If a freehost is very new or rare, we may interpret this as a request to disavow all links from the entire domain. But if you list a subdomain, most of the time we will be able to ignore links only from that subdomain.