My guess on how search engines work.

1) Every webpage is searched for distinct words.
2) The distinct words for each webpage (indexed by a key) is stored in a table, along with a count for number of times each word appears.
3) User searches on keywords.
4) Webpages that have the keywords are returned, ordered by number of keywords that matched.
5) Other filters are used to sort importance of each webpage:
a) Number of times other users have clicked a search result link to go to that webpage for the same keywords.
b) Number of other websites that link to the webpage.

That sounds about right in simple terms, but there are other considerations these days too, as the search engines try to eliminate pages/sites that aren't too useful (such as link farms, pages that have hidden text, and those annoying holding pages that pretend to be relevant search engines).

As the people making those kinds of sites/pages want to work around it (to get their pages seen), and search engines compete with each other, the methods they use for searching are not published - so the best we can do is make educated guesses.

Steps 4 and 5 from your list are likely to be far more complex than we would imagine.

As si said, remember that especially in step 5, it is sorted not only by the key words, but how popular the site is. If there was a site out there e.g. www.vb6.com and it had the word vb6 repeated 1000 times on that page and that was it, then something such as www.vbforums.com would be higher up as its more relevant and also more people go onto it.

I'm afraid those steps are all incorrect. The actual process is as follows:

1) Get pigeons.

http://www.google.com/technology/pigeonrank.html