Why would I exchange links with another site?
Many years ago the major search engines were faced with a hypothetical problem. If two sites were essentially the same…similar content, similar structure…which one should they rank ahead of the other? To come up with an answer they borrowed a tactic from the real world of human resources.
Let’s say you are hiring an office manager for your plastic surgery practice. Two very nice, and apparently qualified, candidates pass a basic interview. Which one do you choose? Well, if you’re smart you’ll check references. Chances are, you’ll choose the one with better references.
Links from other sites back to yours are like virtual references. Another way to think of them are little virtual votes of confidence.
The measure of the number and quality of sites link to yours is called your link popularity.
Keep in mind that who you link to matters. The best links are one way links, pointing at your site, where the link text is rich in your target keywords, and the link appears on a popular page on a popular and authoritative site. But truth be told, even link exchange with smaller, related sites can still help your rankings.