Duplicate content penalties occur when two or more copies of the same item appear in Google's search results. The first item is kept, while the second item is dropped to Google's supplemental search results. For example, search for your site name as a phrase. Go to the last page of results and there you will see "In order to show you the most relevant results, we have omitted some entries very similar to the "X-amount" already displayed. If you like, you can repeat the search with the omitted results included."
This is the first way you can be hit with a duplicate content penalty. Depending on how unique each page of your site is, if you click on the supplemental listings, you will usually find a few more pages of your website, that did not come up before.
You can always work on your SEO to make sure each of your web pages is unique enough to appear in the search results. This, at least, you can control.
The second way you can get hit with a duplicate content penalty is through article submission and social bookmarking sites, such as Digg, StumbleUpon, Zimbio and MySpace. Google does not always give credit to the original author of the content, even if the site has been indexed. Recently, I opened up three of my sites to syndication at a social bookmarking site. They syndicated the first five articles on each homepage. That included my "Welcome To" positioning statement and four of my most popular unique articles.
One week later, my sites did not show up in Google's search results. The links to the sites from the social bookmarking site did show up in the results, and not in the number one positions the articles had previously occupied.
Again, this is something you can control. I pulled the articles back and got my rankings back in a day. I'm very lucky I was looking at my website statistics and could see how this was affecting my traffic and Adsense revenue.
When you submit articles to article directories, edit them enough so they are not exact duplicates to your existing website's articles. This should help you avoid taking a penalty for article submission.
Number three on our list is the use of PLR articles. Private Label Rights articles are sold to many people on the web. If you use these articles to fill out your web pages, chances are a thousand other website developers are doing the same.
I use Article Checker – free tool, to double check all PLR articles – I do not stop revising and editing the article until I get a zero percent duplicate notice from Article Checker.
The fourth way you can get hit with a duplicate content penalty is the worst, and that's when someone steals your content and posts it as their own original content. I'm not talking about a few quotes. I have an "authority" site and some of my articles are quoted all the time, with the appropriate links back to my site. I'm talking about outright theft.
Google picks up the stolen version of your content and you hit the supplemental pages.
What can you do?
Your "unique" website content is considered "intellectual property," and as such is protected under copyright laws.
To find out if your content has been stolen, use Copyscape, another free tool.
If the thief is located in your country can track them down by looking up their IP address and finding out their contact information. Sometimes the contact information is on their website. Notify them that they have your content without your permission. Be courteous and professional because every document/email you send could wind up going to Google or being used in a court case.
Your response to someone stealing content from your site, can range from from ignoring it, to getting them banned from all Search engines, including Google.
For more information on website theft and what you can do, follow the Lorelle on Wordpress link at the bottom of the intel. She has an excellent article on what to do about content theft. Some of the comments on this article are also very enlightening and provide further links.
Back-end Statistics - Be careful how you use them!
Site scrapping happens. Try to install a user statistical program so you can ban people who are stealing not just a page or two, but your entire site.
When I noticed robots sucking down my entire site contents, I do as much IP research to determine who these sites were, before I banned them. I had tried using someone else's ban list, but wound up banning several important European search engines, who game me traffic. One of my sites has a massive amount of pictures and you don't need to know how to speak English to enjoy them. You don’t want to accidentally ban the Googlebot from looking at your site!
Hot Linking Protection
If your ISP or hosting company has Cpanel, learn how to use it for hot-linking protection. (Hot linking is when an object, usually an image, is linked from one site into a web page belonging to a second site.) You can set up hot linking protection and exclude other sites from using your images.
If you're running banner advertising, make sure you don't accidentally protect your site from people who are running banners for you.
You can't keep people from copying your images, but you can keep them from using your bandwidth while they display it on their pages.
Duplicate content penalties hurt your site. Pay attention to your search results and statistics. And be prepared to take action on when your site is copied without your permission.