At first sight, the move seems quite desperate - every other hardware company is trying to scramble out of being Microsoft's companion by jumping on the Android platform and Nokia decides to go the other way? The advantages for Microsoft are quite obvious: The Redmond guys get a huge reward for a few hundred million Dollars as they get their hands on the largest user base in terms of phones sold and are able to push Bing, Maps, its stores, etc in a growing space.
Nokia's core competence is the manufacturing of hardware; however they were completely helpless in keeping up with the other providers as the Smartphone phenomenon appeared. While Blackberry, Palm and HTC "got it" Nokia never really did. Now it is time to catch up. Instead of being one of the manufacturers offering Android-powered phones Nokia decided to team up with Microsoft to establish a third large player and try to capture some of the margins of the Apple-Android Duopoly, which will increase their acceptance from European carriers like Vodaphone and Deutsche Telekom.
Apple currently owns the high end market and it will be difficult to gain a strong foothold there, but Nokia is leading in emerging markets where affordable and easy-to-use phones can be introduced and upgraded as user get more sophisticated and more prosperous (see also Nokia’s press release for more info on the new strategy).