There are two critical issues associated with link exchanges:
Direct Increased Internet Visibility
Improved Search Engine Positioning
Improved Search Engine Positioning - By far the biggest advantage of exchanging links is the effect on your link popularity, and it's subsequent impact on your search engine position.
"Link popularity" refers to the total number of links or "votes" that a search engine has found for your website. The number of websites that link to your website is one of the factors that help search engines determine your relevancy for a search term. Link popularity and gaining new links from outside websites to your website have proven to be a popular concept for people seeking to improve their search engine rankings.
What is link popularity and how exactly does it work? Search engines don't just look at the content of your website to determine if you are a match for a search. They also look at the number of outside websites that can validate, by linking, that you are a good match.
Google PageRank Explained (from Google website)
Search engines have also begun to rank the importance of the sites that link to you. This means if the New York Times links to your site, your credibility is higher than if Joe's Online Newspaper provides a link to your website. Search engines also consider the text contained in the link that is pointing to your website. If the text in the links contains keywords you are trying to compete for, the search engines consider your site to have even greater credibility.
Google PageRank relies on the uniquely democratic nature of the web by using its vast link structure as an indicator of an individual page's value. In essence, Google interprets a link from page A to page B as a vote, by page A, for page B. But, Google looks at more than the sheer volume of votes, or links a page receives; it also analyzes the page that casts the vote. Votes cast by pages that are themselves "important" weigh more heavily and help to make other pages "important."
Important, high-quality sites receive a higher PageRank, which Google remembers each time it conducts a search. Of course, important pages mean nothing to you if they don't match your query. So, Google combines PageRank with sophisticated text-matching techniques to find pages that are both important and relevant to your search. Google goes far beyond the number of times a term appears on a page and examines all aspects of the page's content (and the content of the pages linking to it) to determine if it's a good match for your query.
Link popularity will continue to be an essential factor in successful search engine marketing initiatives for the foreseeable future. Links are a helpful tool for search engines trying to wade through billions of documents and find ones that are relevant to their users.
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