I quite often receive requests for the Data Mining Algorithms details. Book Online has wonderful resources for the same. I suggest to read them here.
The data mining algorithm is the mechanism that creates a data mining model. To create a model, an algorithm first analyzes a set of data and looks for specific patterns and trends. The algorithm uses the results of this analysis to define the parameters of the mining model. These parameters are then applied across the entire data set to extract actionable patterns and detailed statistics.
Reference: Pinal Dave (http://blog.SQLAuthority.com)