A company's book value is the worth of all their assets. What would cause a stock to trade below book value?
A company's stock value is indicative of the market's collective belief of the future of the company. The relationship of between price and book value will vary according to the quality of the company, the category of stock, etc.
In extreme cases, say Bank of America, the stock trades at a fraction of book, because BOA's books are a fantasy by most people's reckoning.
Discrepancies between what the book value is reported as and what they'd fetch if sold on the open market. Legal disputes in court.
The key to evaluating book value is return on equity (ROE). That's net profit divided by book value.
The "value" of book value is measured by the company's ROE (the higher the better). If the stock is selling below book value, the company's assets aren't earning enough to satisfy most investors.
Would you buy a CD that was paying, say two percentage points below the going rate for 100 cents on the dollar? Probably not. You might be willing to buy it only by paying 2% less per year, say 98 cents on the dollar for a one year CD. The two cent discount from "book value" is your compensation for a low "interest" rate.
all of these examples are great if you actually believe in fundamentals, but who believes in fundamentals alone any more? Stock prices are driven by earnings, news, and public perception. For instance, a pharma company named Eyetech has their new macular degeneration drug approved by the FDA, and yet their stock price plummeted. Typically when a small pharma company gets a drug approved, it's off to the races. But, Genetech came out said their macular degeneration drug was going to be far more effective, and that they were well on track for approval.