You can use nonlinear regression programs without having any idea how the curve fitting works. But it helps to have some understanding. You won't be able to fully understand the mathematical details of nonlinear regression unless you first master matrix algebra. But the basic idea is pretty easy to understand, and is explained here. Every nonlinear regression method follows these steps:

1. Start with an initial estimated value for each variable in the equation. The program can't determine the best-fit values unless you first give it some estimates. In most cases, these estimates don't have to be very accurate.2. Generate the curve defined by the initial values. Calculate the sum-of-squares (the sum of the squares of the vertical distances of the points from the curve). Why is goodness of fit defined as the sum of squares?3. Adjust the variables to make the curve come closer to the data points. There are several algorithms for adjusting the variables, as explained below. 4. Adjust the variables again so that the curve comes even closer to the points. Repeat many times.5. Stop the calculations when the adjustments make virtually no difference in the sum-of-squares. 6. Report the best-fit results. The precise values you obtain will depend in part on the initial values chosen in step 1 and the stopping criteria of step 5. This means that repeat analyses of the same data will not always give exactly the same results.

You want to fit a binding curve to determine Bmax and Kd using the equation

How can you find the values of Bmax and Kd that fit the data best? You can generate an infinite number of curves by varying Bmax and Kd. For each of the generated curves, you can compute the sum-of-squares to assess how well that curve fits the data. The following graph illustrates the situation.

The X- and Y-axes correspond to two variables to be fit by nonlinear regression (Bmax and Kd in this example). The Z-axis is the sum-of-squares. Each point on the surface corresponds to one possible curve. The goal of nonlinear regression is to find the values of Bmax and Kd that make the sum-of-squares as small as possible (to find the bottom of the valley).  

The method of linear descent follows a very simple strategy. Starting from the initial values try increasing each parameter a small amount. If the sum-of-squares goes down, continue. If the sum-of-squares goes up, go back and decrease the value of the parameter instead. You've taken a step down the surface. Repeat many times. Each step will usually reduce the sum-of-squares. If the sum-of-squares goes up instead, the step must have been so large that you went past the bottom and back up the other side. If this happens, go back and take a smaller step. After repeating these steps many time, you'll reach the bottom.

The Gauss-Newton method is a bit harder to understand. As with the method of linear descent, start by computing how much the sum-of-squares changes when you make a small change in the value of each parameter. This tells you the slope of the sum-of-squares surface at the point defined by the initial values. If the equation really were linear, this is enough information to determine the shape of the entire sum-of-squares surface, and thus calculate the best-fit values of Bmax and Kd in one step. With a linear equation, knowing the slope at one point tells you everything you need to know about the surface, and you can find the minimum in one step. With nonlinear equations, the Gauss-Newton method won't find the best-fit values in one step, but that step usually improves the fit. After repeating many iterations, you reach the bottom.

This method of linear descent tends to work well for early iterations, but works slowly when it gets close to the best-fit values (and the surface is nearly flat). In contrast, the Gauss-Newton method tends to work badly in early iterations, but works very well in later iterations. The two methods are blended in the method of Marquardt (also called the Levenberg-Marquardt method). It uses the method of linear descent in early iterations and then gradually switches to the Gauss-Newton approach. Prism, like most programs, uses the Marquardt method for performing nonlinear regression.

To learn more about how nonlinear regression works, read Chapter 15 of Numerical Recipes in C, Second Edition, WH Press, et. Al. , Cambridge Press, 1992 or Chapter 10 of Primer of Applied Regression and Analysis of Variance by SA Glantz and BK Slinker, McGraw-Hill, 1990.