Snippets are the few lines of text that appear after a search result. They give the visitor an idea of the content of the page. They are usually just plain text, taken from the content of the page itself, or from a description meta tag if one exists.
However if Google (or other search engines) can understand more about the content of your page then they can create more detailed and structured snippets, these are rich snippets. For example a restaurant may show the average review and a price range, a product page may show the manufacturer, a sample image, and a special offer price, an album could lists songs and a link to play each song. Rich snippets can help users recognise that your page is exactly what they are looking for, and make them more likely to click on your link in the search results.
The key to rich snippets is something called microdata. Microdata is a way of adding semantic information (i.e. meaning) to a web page. A web page usually already contains all the content necessary for a rich snippet. For example a product page already contains a title, a description of the product, an image, a price etc. The problem is that Google doesn't know where exactly in the page to find all this information. Microdata is a way of adding additional markers to a page, that don't change the way it looks, but do indicate to search engines where the key pieces of information are.
Once Google sees microdata on your page it can start to understand more about the content of the page, and what each piece of content means. It can then use this information to construct a rich snippet when it displays your search result in a listing, rather than just a few lines of text.
Of course for this to work there needs to be agreement over how microdata works. Fortunately there is an organisation (http://schema.org/) which oversees the definition of the microdata format. There are hundereds of different schemas for microdata, representing hundereds of different types of data you may want to describe. Google and most search engines currently only recognise a few of these, specifically:
The most useful of these (for most sites) are reviews and products. Certainly for e-commerce sites taking advantage of these microdata schemas can help to promote your product pages within the Google listings. There is some evidence using microformats may even help boost your search engine position for local searches, but their main benefit is to make your listing stand out rather than to gain places.
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