The process of increasing the number of inbound links to a website in a way that will increase search engine rankings.
Link building is a way to improve a page’s search ranking for a given keyword or keywords. A page’s rank (generally) improves by increasing the number of incoming links, whose corresponding anchor text is relevant to the targeted keyword(s).
Note, however, that the search engines may try to detect and downgrade methods of link building they feel harm the quality of their search results, such as paid links and comment spamming.
Link analysis algorithms at search engines have become increasingly sophisticated over the years. In the early days, the quantity of links was the main factor. Then the relative importance of those pages (i.e. PageRank) and relevance of anchor text keywords. Modern algorithms now also try to determine the quality of content in the page where the links come from. Inbound links from low-quality pages do little to improve a target page’s rank, and may even worsen it.
Some web pages may contain the “nofollow” command on some oftheir links. This code prevents search engines from counting the link as a “vote” for the linked page. This is a common practice in many blog pages, with the code inserted in the comments section.
101 Ways to Build Link Popularity
SEO Book (August 16, 2006)