Search Engine Book - Chapter Ten
Acquiring incoming links from external high quality web sites is of the utmost importance. It's also the most challenging aspect of search engine optimization (SEO). From where you get them, and how many you need, depends entirely on what web sites you're competing with for top rankings. You don't have to be perfect in every sense, just closer to perfect than whoever you're competing with. So, the answer is always relative and is different in every case.
Although we expect that links will continue to be one of the most influential factors for the foreseeable future, exactly how search engines value links will continue to evolve as developments in social media, profiles and authorship also continue to evolve in regards to authority and trust.
Let's start with the basics. Below you see an illustration of the simplest and most common link relationship, a one way link.
The next illustration is a view of another common type of link relationship, the reciprocal link.
Both the one way link and the reciprocal link pass PageRank (link juice) to the site being linked-to. And, since Google and the other search engines base a large part of their ranking algorithm on these two types of link relationships, such links hold the potential to significantly boost your rankings.
Sometimes, however, there are link relationships that should be ignored by the search engines in order to avoid wasting PageRank or running contrary to Webmaster Guidelines or Terms of Service. In such cases the nofollow attribute or robots.txt file can be used to protect your site from diluting its link juice or violating the rules.