

You won't be able to understand the mathematical details of nonlinear regression unless you first master matrix algebra. But the basic idea is pretty easy to understand. Every nonlinear regression method follows these steps:
1. Start with initial estimated values for each parameter in the equation.
2. Generate the curve defined by the initial values. Calculate the sumofsquares  the sum of the squares of the vertical distances of the points from the curve. (Or compute the weighted sumofsquares if you are including weighting factors.)
3. Adjust the parameters to make the curve come closer to the data points  to reduce the sumofsquares. There are several algorithms for adjusting the parameters, as explained below.
4. Adjust the parameters again so that the curve comes even closer to the points. Repeat.
5. Stop the calculations when the adjustments make virtually no difference in the sumofsquares.
6. Report the bestfit 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.
Step 3 is the only difficult one. Prism (and most other nonlinear regression programs) uses the method of Marquardt and Levenberg, which blends two other methods, the method of linear descent and the method of GaussNewton. The best way to understand these methods is to follow an example. Here are some data to be fit to a typical binding curve (rectangular hyperbola).
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 sumofsquares to assess how well that curve fits the data. The following graph illustrates the situation.
The X and Yaxes correspond to two parameters to be fit by nonlinear regression (Bmax and Kd in this example). The Zaxis is the sumofsquares. 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 sumofsquares 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 sumofsquares goes down, continue. If the sumofsquares 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 sumofsquares. If the sumofsquares 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 times, you will reach the bottom.
The GaussNewton method is a bit harder to understand. As with the method of linear descent, start by computing how much the sumofsquares changes when you make a small change in the value of each parameter. This tells you the slope of the sumofsquares surface at the point defined by the initial values. If the equation really is linear, this is enough information to determine the shape of the entire sumofsquares surface, and thus calculate the bestfit 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 GaussNewton method won't find the bestfit 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 bestfit values (and the surface is nearly flat). In contrast, the GaussNewton 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 LevenbergMarquardt method). It uses the method of linear descent in early iterations and then gradually switches to the GaussNewton approach.
Prism, like most programs, uses the Marquardt method for performing nonlinear regression.
References
Chapter 15 of Numerical Recipes in C, Second Edition, WH Press, et. Al. , Cambridge Press, 1992
Chapter 10 of Primer of Applied Regression and Analysis of Variance by SA Glantz and BK Slinker, McGrawHill, 1990.