It works in two different ways. The first is that people check their analytics and see lots of visits from the spammers website and they then go to look at the website. I would imagine that if you target enough websites you could generate quite a bit of traffic.

Also lots of people used to leave their webstats open to search engine spiders and this would generate lots of links to their website.

I didn't think referrer spam was that popular anymore, but it must be working for someone

Apparently, the site trafficfaker*dot*com has a service that spams other sites with a ton of visits in order to get the attention of the victim site.  I guess the goal is to really wow the spammed site so they will visit the referring site and maybe even link back to it.

I viewed my Google Analytics report one day last week and it showed 1500 referrals from lifeafter50*dot*com.  It happened again the next day and there was another site that was sending thousands of 'referrals.'  Of course none of these sites were linking to me via an article - it was purely spam.

I'm not sure how I was targeted, but if I had to guess, I wonder if they wanted me to mention them as a referrer when I post my site stats next month.  

You can add filters in Google Analytics, but I think it may take a few days to register.  I put up a filter on Friday night, but still get a few thousand spam hits.  It's just frustrating..

I don't think Google should penalize you for that because otherwise it would be open for abuse. Don't like a competitor? Spam them and laugh as Google penalizes them.

Any tips?

Also, will Google penalize the victim site? I'm hoping that Google doesn't reduce search engine traffic because of the crummy referral spam.