How linear regression works. Minimizing sum-of-squares.
The goal of linear regression is to adjust the values of slope and intercept to find the line that best predicts Y from X. More precisely, the goal of regression is to minimize the sum of the squares of the vertical distances of the points from the line. Why minimize the sum of the squares of the distances? Why not simply minimize the sum of the actual distances?
If the random scatter follows a Gaussian distribution, it is far more likely to have two medium size deviations (say 5 units each) than to have one small deviation (1 unit) and one large (9 units). A procedure that minimized the sum of the absolute value of the distances would have no preference over a line that was 5 units away from two points and one that was 1 unit away from one point and 9 units from another. The sum of the distances (more precisely, the sum of the absolute value of the distances) is 10 units in each case. A procedure that minimizes the sum of the squares of the distances prefers to be 5 units away from two points (sum-of-squares = 50) rather than 1 unit away from one point and 9 units away from another (sum-of-squares = 82). If the scatter is Gaussian (or nearly so), the line determined by minimizing the sum-of-squares is most likely to be correct.
The calculations are shown in every statistics book, and are entirely standard.
The term "regression"
The term "regression", like many statistical terms, is used in statistics quite differently than it is used in other contexts. The method was first used to examine the relationship between the heights of fathers and sons. The two were related, of course, but the slope is less than 1.0. A tall father tended to have sons shorter than himself; a short father tended to have sons taller than himself. The height of sons regressed to the mean. The term "regression" is now used for many sorts of curve fitting.
The details
The details of linear regression are explained in numerous text books, so will not be detailed here. Everything Prism does is standard. Here is one good source for the basics including confidence and prediction bands.
