The original algorithm for Google’s search result was highly focused on links from web pages to web pages. Think of links as votes in confidence from one page to another. More links for a website mean that more people feel that page is the authority for its topic. Naturally, Google wants to present the authority on every topic for its top result, and links help decide that.
Are all links worth the same value?
No. Just like people, certain web pages are trusted more. Therefore, if www.MyCheeseBlog.com linked to a website site, it probably wouldn’t carry as much impact as if www.CNN.com or www.Harvard.edu linked to web site. Google recognizes this trust by ranking every page and developing a score, referred to as ‘PageRank’.
PageRank flows from one page to the other page via the link. So, a link from a high PageRank page to a low PageRank page really boosts the overall PageRank score for the linked to page.
Is relevancy of a link important?
Yes, linking from a page about ski rentals to a ski rentals page clearly makes more sense for a human reader, then a link from www.MyCheeseBlog.com to a ski rentals page. However, any link still helps because it passes a portion of the PageRank.
Since links are good, can we just buy them?
Yes we can, but we don’t want to. Earning organic links from people who appreciate our sites and content is preferred, and detectible by Google. Google is very clear that buying a link from a web page for the purpose of transferring PageRank is against its quality guidelines because it is attempting to trick their ranking system. If they figure out that a link has been placed for money, they will penalize the website by devaluing the link or possible black-listing the website.
How does Google know if you bought a link?
This is a tough question. It has been suggested that Google can figure out a paid link depending on where it is placed on a site (proximity to other ads), repetitive use of the link anchor text (indicating a link placing system), or if the linking website in general is regarded as a ‘seller’ of links. No one outside of Google really knows, because knowing would lead to people trying to beat the system and continue to sell links.
There have been accounts of people actually trying to sell PageRank on eBay; it didn’t work out well for them.