2012 Elections results finally in US officially applies 4 Banana Republic status @ UN

[Tiberius]

There is nothing flawd about that.

It is flawed if the votes of more than 50% of the people effectively count for nothing.

And your example is a theoretical one which hasn`t jet been seen within political reality.

Absolutely 100% irrelevant. A system's flaws aren't judged on whether they have been seen in practice, but whether they could ever happen. A lot of flaws in electoral systems are made unlikely due to other flaws, such as when the entire state of affairs tends towards a two party system (as happened in the US, and to a lesser extent in the UK and other parts of Europe).

And even if it would happen. C, D and E voters would have to pick another candidate which they feel would represent them better.

That isn't the point of a vote. The point of voting is that you have already picked the candidate that represented you the best. To say to 60% of the electorate that they have to choose again doesn't seem unfair to you? Why do 40% of the people get preferential treatment over 60%?

What do you mean by "the votes are devided between the remaining candidates"?????
And who has the authority to devide the votes and assign them to candidates without the voters concent?

I'll explain. The authority is given by the voters; they give their consent in their vote:

Let's imagine 4 candidates: A, B, C, D.

A is a strong conservative who appeals to right wingers.
B is a strong liberal who appeals to those on the left.
C is a moderate, combining values of the right with the left.
D is an independent candidate.

On election day, voters rank these candidates in order of preference. Note that the ranking is very much up to them; they can rank as little as one candidate, or as many as all four of them. For instance, a ballot from a liberal may look like this:

A: 3
B: 1
C: 2
D: 4

Whilst a ballot from a staunch supporter of the independent might look like this:

A:
B:
C:
D: 1

Once all the ballots are collected, all the first preference votes (i.e. those marked with a '1') are counted. The results are as follows:

A: 35%
B: 30%
C: 25%
D: 10%

So, nobody won an overall majority. If A was declared the winner, you'd effectively be rejecting the votes of 65% of the population. Instead, the candidates with the least amount of votes (D) gets eliminated.

However, rather than discounting 10% of the electorate's votes, as happens in the French system, the second preference votes (i.e. those marked with a '2') of those 10% are now counted and distributed amongst the remaining candidates. For the sake of simplicity, let's say that all 10% of D's supporters preferred the moderate policies of C over the political extremes of A and B. So, after this redistribution, the votes now look like this:

A: 35%
B: 30%
C: 35%

Again, nobody won an overall majority, but the moderate actually overtook the liberal candidate through the extra votes from D's supporters. The candidate with the least amount of votes (B) now gets eliminated, and the second preference votes of those that voted for B get distributed amongst the remaining candidates. Note that if any of B's votes are already second preference (as some of C's are), the third preference votes of those ballots would be counted instead. For simplicities sake again, let's say that all 30% of B's voters also preferred the moderate candidate (likely since he supports some left wing policies, whilst the conservative does not). After this redistribution, the votes now look like this:

A: 35%
C: 65%

We are left with two candidates, and candidate C has the most votes, winning him the election.

The benefits of AV are numerous, but the more obvious and important are the fact that nobody has a wasted vote, since each voter can participate in each round (by ranking all candidates), or choose simply to vote for one candidate only, as they had done before. It also effectively nulls tactical voting, where a voter votes for a candidate who doesn't really represent their views, because they want to keep out another candidate who represents their views even less. It also makes so-called "safe seats" less safe, which means the politicians who fill those seats have to actually work for the vote of the people they represent.