The alexa rating can be used as a yardstick for how many site visitors you receive.
However, it's not very accurate until your site receives a lot of traffic and even then the figures can easily be skewed. Like all of these tools use them as a guide in conjunction with others like
http://www.marketleap.co.uk, google toolbar seo toolbar
http://www.seoinc.com/toolbar/ to build up a solid picture of a domain and it's traffic.
The alexa ranking works by measuring visitors to a site in two ways using the cumulative results to give an overall traffic ranking.
Firstly it measures the "reach" how many visitors per million your site receives. Then it measures how many page views each visitor records.
The flaw in the system and the reason why I say it is not to be taken as gospel is that it depends on how many visitors to your site have the alexa toolbar installed.
If you are a webmaster orientated site for example then you are likely to have a far higher proportion of visitors surfing with the alexa toolbar installed because that is their interest and so these types of sites generally have a higher ranking even though they have fewer visitors than a lower ranked site.
If you are looking at sites in the top say 20,000 then the figure is more accurate as you have higher visitor levels to make up a consensus.
If your site is 5.3 Million today then install the alexa tool bar and surf your site occasionally during the day. Magically you can make your alexa ranking rise easily into the top 500,000 within a few weeks. Even though you only have a few visitors daily.
This works because you have a low "reach" but high "page views" and you combine the total to get your ranking.
I hear many people saying that you must have x amount of traffic because the Alexa ranking is Y but it's not neccessarily true.
You can use this tool to make a more informed decision about buying a high traffic domain as it's "reach" will tell you whether the unique visitors are going up or down and the page views will tell you how "sticky" the site is.
But for domains in the lower echelons of web traffic it's useless.