It seems that everyone uses the star review system differently. I've seen people who give 5 stars rarely, only to their favorites, and then there are others who rarely give less than a full, 5-star rating.
When I'm rating, I rarely give books 1 or 2 stars. If I really dislike it, it's usually a 2. I save 1-star ratings for the most terrible books, the ones I just can't stand - and I've never given a book 1 star for that reason. If I hate it so much, I don't finish reading.
Although 3 stars tends to be my lowest rating, it doesn't usually mean I've found the book to be bad. These are books I finish and think, "It was okay." 4 stars means I enjoyed it and 5 stars means I loved the book (but doesn't mean it's without flaws).
It's interesting to me that people use the ratings in completely different ways. I love rating with stars, especially on sites like Goodreads, if only for my own sake - I get to quickly see what I thought of the book. But I wonder if sometimes people pay more attention to these stars than the written reviews. For example, I've spoken to people who only read books above a certain average rating, and I wonder if that number actually says anything about the book.
How do you guys feel about star ratings? How much should they be depended on when deciding to read a book? What's your system for the ratings you give?