Official google webmaster central blog has a written content regarding this issue, take time on reading this one.
Do 404s hurt my site?
Webmaster level: Beginner/Intermediate So there you are, minding your own business, using Webmaster Tools to check out how awesome your site is... but, wait! The Crawl errors page is full of 404 (Not found) errors! Is disaster imminent??
Fear not, my young padawan. Let’s take a look at 404s and how they do (or do not) affect your site:
Q: Do the 404 errors reported in Webmaster Tools affect my site’s ranking?
A: 404s are a perfectly normal part of the web; the Internet is always changing, new content is born, old content dies, and when it dies it (ideally) returns a 404 HTTP response code. Search engines are aware of this; we have 404 errors on our own sites, as you can see above, and we find them all over the web. In fact, we actually prefer that, when you get rid of a page on your site, you make sure that it returns a proper 404 or 410 response code (rather than a “soft 404”). Keep in mind that in order for our crawler to see the HTTP response code of a URL, it has to be able to crawl that URL—if the URL is blocked by your robots.txt file we won’t be able to crawl it and see its response code. The fact that some URLs on your site no longer exist / return 404s does not affect how your site’s other URLs (the ones that return 200 (Successful)) perform in our search results.
Q: So 404s don’t hurt my website at all?
A: If some URLs on your site 404, this fact alone does not hurt you or count against you in Google’s search results. However, there may be other reasons that you’d want to address certain types of 404s. For example, if some of the pages that 404 are pages you actually care about, you should look into why we’re seeing 404s when we crawl them! If you see a misspelling of a legitimate URL (www.example.com/awsome instead of www.example.com/awesome), it’s likely that someone intended to link to you and simply made a typo. Instead of returning a 404, you could 301 redirect the misspelled URL to the correct URL and capture the intended traffic from that link. You can also make sure that, when users do land on a 404 page on your site, you help them find what they were looking for rather than just saying “404 Not found."