So does cooldown reduction stack or does it just select the greatest modifier in your inventory?
If it does stack, then how does it work?
If I had a Nashor's tooth (25% cooldown reduction), a soul shroud (15% cooldown reduction), and a brutalizer (10% cooldown reduction), does that mean i get 50% cooldown reduction or do i get 42.625% cooldown reduction?

If the mechanics work as stated in the former, then is it possible to reduce all your spell cooldowns by 80%? (or really any theoretically ridiculously high number).
halpz plz?

but how does it work?

How it works is quite easy:
say you have an ability with 10 seconds cooldown. 20% cd redux will mean it ouly take 8 seconds to cooldown, and 40% means 6 seconds.

Cooldown redux adds up. 10%+15% = 25%, with a cap at 40%. Keep in mind that you usually cant stack the same item with cooldown reduction, as its a UNIQUE ability on that item. Several different items with UNIQUE cooldown redux will stack.

Just make sure your not making the mistake to stack Unique items as it will profit you nothing.

Also dont get caught into the trap of thinking if i can just get my cooldown to always be available I will win every encounter, hard stats are gonna be a better choice in some cases.

Cooldown reduction stacks additively (10% + 10% = 20%) from masteries, runes, champ abilities (ie: heimer ult), neutral creep buffs (golem), unique item boosts (but only one of any 'unique' boost), and non-unique item boosts to a max of 40%.

10 second cooldown @ 10% CDR = 9 second cooldown
10 second cooldown @ max CDR = 6 second cooldown

Things that stack multiplicatively are dodge (10% dodge + 10% dodge ~= 18% dodge) and as of last patch percentage penetration (ie: void staff + mastery is no longer 40% + 15% = 55% but now more like 50%)