I've read in some sources that there are more words in the Eskimo/Inuit language to describe types of snow that have arisen out of necessity. I've also read in other sources that this is just urban legend and that they really don't have any more words for snow. What is the correct metric used to measure if they have more words (for example do we count only single words such as snow, sleet, powder and not include compound words like snow-drift)? Do they actually have more words for snow?
Not at all. Read this great paper, The Great Eskimo Vocabulary Hoax for the full details.
The summary is: some researcher noted that, in English, we have some "snow" words with the same root, like "snowstorm," "snowfall," but these words have words with different roots in the Eskimo language, much like we have "river" and "stream." It was then misunderstood and taken from there, leading to more and more ridiculous claims, each one only looking at the one claim prior to it and not the initial source, which most people forgot.
Not really, it's more of an urban legend.