Have noticed a huge drop in backlink count and pages indexed this week. Anyone else notice this? Has it affected traffic from the engines for you?

There are more and people talking about the same thing (plus PR fluctuations). I noticed fewer pages being reported as blocked in my Google Webmaster Tool account. Seems like Google is up to something.

My backlinks have stayed the same, I have exactly 666 backlinks showing via the link: tool. See, Google is evil .

However! I have noticed a nice freshness of their site: query. It now shows all my updated urls and NONE of them are supplemental. Not to mention that I am beginning to rank decent for targeted keywords

So yes I have noticed a difference but mine was positive.

I still have almost every page in the supplemental index so the fact that 75% of my pages are gone doesn't bother me. Hopefully I fair as well as you and finally get into the real index.

What's the difference between the real index and supplemental index?

The supplemental index is only slightly better then being banned. Pages in it are only shown after Google has displayed sites in its regular index. For most terms that means never being in the SERPs at all.

How you get in the supplemental index is anyone's guess although there is no shortage of theories (of course). Same goes for how to get out.

What about sites that half some pages in the regular index and some in the supplemental? Are the pages in the supplemental index just not worthy of being indexed?

Hard to say. There doesn't seem to be a set criteria as for what goes supplemental and what doesn't. Duplicate content seems to trigger it, but there is plenty of original content that is supplemental as well. A lot of people consider it worse then being banned because at least when you are banned you know why and can get it fixed. When you're supplemental, you're kind of in limbo.

The main reason for supplemental result is,

1. The web page no longer exists, but it’s still in Google’s index
2. A web page is orphaned with no internal links pointing to it or buried too deep to be crawled regularly
3. Indexing issues due to redirect, java script navigation or too many parameters in the URL or SessionIDs are used
4. A duplicate page exists somewhere on the same website or externally
5. The page contains the same Title, and META tags as many other pages on the website
6. Not enough internal or external inbound links to give weight to the page
7. Hundreds of unrelated external links on one page

Indexed pages of search engines often change, day by day. don't worry.