In-bound links from other web sites to yours provide two avenues to success for your site.
First, the number of quality in-bound links pointing to your web site are a major factor that the search engines (including Google) use to rank web pages in their databases. Lots of high-quality in-bound links can help boost a page into the "top 10" of a search engine's search results page (SERP).
In addition to the search engine ranking benefits provided by in-bound links, they are also a very steady supply of referral traffic to your web site! If you are able to attain a large number of links from quality sites, you will get about as much traffic from referrals as you get from the search engines.
The big question is "How do I get other sites to link to mine?".
There are several techniques that you can use to entice other webmasters to link to your site:
1. Simply ask the webmaster for a link! If your site can be a valuable resource for the other site's visitors, send the webmaster a polite, personalized email asking for a link. Tell the other webmaster why a link to your site would be beneficial to his visitors (and his site).
For example: Your site sells books about web site promotion. Your web site would probably be of value to the visitors of a site that features web authoring books or tutorials. And since your site compliments (but doesn't compete with) his site, he may well be happy to give you a link!
2. Offer the other webmaster a freebie in exchange for a link. You could offer a free software download, a free service (such as search engine optimization for his site), or a testimonial for his site (with your link in it of course).
3. Write articles about a topic in your field of expertise. Offer to let other webmasters use the article on their websites or in their newsletters. At the end of the article will be a "resource box" that provides information about you and a link to your web site. Writing free articles is a major traffic-builder!
4. Produce and distribute free ebooks about topics in your field of expertise. Give (or better yet sell) other webmasters the right to distribute your ebook via their web sites or newsletters. Of course, each ebook will have information about your web site as well as a link to it!
5. Exchange links with other web sites that compliment (but don't compete) with yours. Do a Google search on one of your target keywords. Contact each webmaster with a personalized email explaining why a link exchange would benefit both sites (be very specific). Then ask to exchange links. It helps to already have his "reciprocal" link in place before you contact him with the URL of the page on your site with his link on it.
There are numerous other techniques that you can use to get in-bound links to your site. Simply use your imagination. If you devise a well-thought out plan for your link campaign and apply it with diligence, you can watch your search engine rankings and web site traffic steadily climb to ever new heights!