he 5-4-3-2-1 rule embodies a simple recipe for network design. It may not be easy to find examples in practice, but this rule neatly ties together several important elements of design theory. 
To understand this rule, it's first necessary to understand the concepts of collision domains and propagation delay. Collision domains are portions of a network. When a network packet is transmitted over Ethernet, for example, it is possible for another packet from a different source to be transmitted close enough in time to the first packet to cause a collision on the wire. The total range over which a packet can travel and potentially collide with another is its collision domain.
Propagation delays are a property of the physical medium (e.g., Ethernet). Propagation delays help determine how much of a time difference between the sending of two packets on a collision domain is "close enough" to actually cause a collision. The greater the propagation delay, the increased likelihood of collisons.

The 5-4-3-2-1 rule limits the range of a collision domain by limiting the propagation delay to a "reasonable" amount of time. The rule breaks down as follows:

5 - the number of network segments
4 - the number of repeaters needed to join the segments into one collision domain
3 - the number of network segments that have active (transmitting) devices attached
2 - the number of segments that do not have active devices attached
1 - the number of collision domains 
Because the last two elements of the recipe follow naturally from the others, this rule is sometimes also known as the "5-4-3" rule for short.