Magic Find (MF) is an affix which raises your chance to find higher quality type items. There are 7 different quality types: low quality, normal, superior, magic, rare, set and unique. Items considered to be "Lower quality" are: low quality, normal and superior. Items considered to be "Higher quality" are: magic, rare, set and unique. Generally stacking MF is recommended for farming purposes.
MF makes more items that do drop to be "higher quality" (magic/rare/set/unique), it, however, doesn't make more items drop. Or simplified: No matter how much MF you have, you won't get more items per enemy kill, but instead the items that do drop, will have better chances to be "higher quality" (magic/rare/set/unique).
Example: Let's say you have 300% MF. So, if the item dropped (with 0% MF) had 5% chance to be unique, with 300% it would have greater chances (let's say 12% - 13%) to be unique (NOTE: MF isn't as effective towards unique items as it is towards magic items, because the percentage is not linear). The point is: If the game decides that a Plated Belt will drop, it will drop, but MF will only decide whether that Plated Belt is going to be "higher quality" or "lower quality".
In short: MF is taken into calculation after the item has already dropped and it only decides what quality the item will be.
There is no cap on MF, but there are diminishing returns. In theory, the more MF you have the better (in terms of getting higher quality items). With 1000% MF you'll find more uniques than with 900% MF, far more than with 500%, and a multitude of times more than with 200%. So, in theory, more is always better. As you probably know, MF will also affect the probability of rare/set/unique items dropping (but that probability is not linear, as it is for magic items), but MF for those items are curves instead. The following picture should help you understand how diminishing returns of EFM (real MF chance) works.
Frequently Asked Questions
Q: Does 100% MF mean I will always get magic item?
A: No. It means that your chances are doubled (200% = tripled, 300% = quadrupled, etc.).
NOTE: MF isn't as effective towards rare/set/unique items as it is towards magic items, so percentage is NOT linear.
Example: Let's say you have 30% base chance to get magic item on drop. With 100% MF you would have 60% chance, because percentage is linear.
Example: Let's say you have 10% base chance to get unique item on drop. With 100% MF you wouldn't have 20% chance, because the percentage is NOT linear (in truth, that chance would be around 17%).
Q: How does MF work with mercenary kills/reanimate kills/poison kills?
A: For mercenary kills: their MF + your MF (but only if mercenary lands the final hit).
For minion kills: they use your MF to calculate the drop (since they don't have any MF of their own).
For poison kills: MF is calculated normally (works with mercenary kills/reanimate kills/spell kills etc.). *
For any kind of kill by player (normal attacks, skills, spells): MF is calculated normally (all your MF add up and is used to calculate the drop).
NOTE: MF is calculated just for the player/party member that lands the final hit.
* The reason why poison is separately mentioned is because poison mechanics are complicated, however that information can be found in another article.
Q: Does MF works on chests scattered around acts?
A: Yes, and it also works on everything similar, like barrels, clickable corpses, hidden stashes, Evil Urns, etc.
Q: Does MF helps with gambling?
A: No. It has no effect on gambling.
Q: Does MF affects items offered by town vendors?
A: No. Town vendors sells ONLY normal and magic items.
Q: Does MF have any effect when creating items in the Horadric Cube?
A: No. None of the actions with Horadric Cube (creating items/uptiering items/upgrading items, etc.) are affected by MF.
Q: Can MF help me to get better runes?
A: No. Also, MF doesn't affect: great runes/elemental runes/Kabraxis' Stone runes, UMOs, gems, shrines, charms, trophies.
Q: Can I manually affect my MF chance?
A: Yes, in a way. You can increase the number of players that MAY bring you more item drops.
During a single player game, tcp/ip or open battle.net multiplayer game, press Enter and type the following to increase player count:
"/players X" ==> where X is a number from 1 to 8
Example: Let's take Tran Athulua's charm (Sunstone of the Gods) as example. Each of the 3 priestesses have 1/6 chance to drop the charm. That chance is generated by "NoDrop" *, that works like this: greater the player count, better the chance of getting something (the charm, in this example), and lesser the chance of getting nothing (no drop at all).
Increasing the number of players MAY get you more item drops, so you'd automatically have MORE chances of getting "higher quality" items.
* "NoDrop" is a variable/value that has a 0% chance to generate items (no drop at all).