Google announced its freshness update on Nov 3, 2011. Here is what Google has announced regarding the Freshness update:
“Building upon the momentum from Caffeine, today we’re making a significant improvement to our ranking algorithm that impacts roughly 35 percent of searches and better determines when to give you more up-to-date relevant results for these varying degrees of freshness.”

This means that it is an algorithm change and must be considered when trying to best optimize your site for Google rankings. Since it will impact 35 percent of searches, this means that about 1.2 billion searches a day will be impacted. That is 3 times more impact than the Panda update which had SEOs scrambling to work out new ways to get on top.

Here is what the Google Freshness Update impacts

Regular recurring events: One problem that plagued Google was old established event pages were generally ranked higher than newer more timely event pages. Doing a search for a popular trade show might result in shows from 5 years ago appearing at the top. Google is trying to fix this by having the most recent show rank best.
Latest News or trending topics: The goal for Google with this update is to look more current (ie, fresh). Thus, searches for recent events or trending topics are greatly affected. Searches for such topics will show a time stamp in the results where you can actually see how the more fresh the story the higher it ranks.
Frequently updated information: The algorithm tries to determine topics where freshness should be important to rankings. For example a review for best digital camera should show recent camera reviews of newer model cameras. Do a search for “ipod review” and you’ll see how “freshness” impacts the results.

How to Optimize for Google Freshness Update

When targeting fresh terms, now it is important to appear fresh. Google determines whether a site is fresh or not based on when your page was last modified. Using sitemaps you can timestamp your latest changes and Google will know how fresh your content is. The goal would be to make the content look constantly fresh. Rankings with Google “freshness” update can be a few days to minutes old.
I have always advocated updating your website at least monthly, and preferably weekly. Now top ten means having updates be hourly. The great thing is its all new, which means there is a huge opportunity to take advantage of this untapped method of SEO. An observation made by SEOmoz was the dates associated to content seems to be also closely corresponding to rss feeds of the articles. WordPress automatically creates rss feeds for the blog posts, which means people using it will have a slight advantage – another reason for using WordPress, which I advocate for most small business websites.
To recap, here is what you need to do:
1) use sitemaps
2) use rss feeds
3) update often