Getting other people to link to your site is one of the best ways to win the trust of search engines. If quality sites are linking to you in the right context, using appropriate anchor text, your page equity will increase. What won’t do you any favours is heavy use of reciprocal links, using link farms and using links out of context.
So you’ve been approached by someone who needs backlinks as much as you do, and they suggest that you swap links? This can go unnoticed if it is a small element of your overall link picture, however Google will not look fondly upon a site with 5 backlinks, all of which are also linked out in exchange. Instead, give other web masters and bloggers a good, natural reason to link to you.
Link farming is one of the key cheats that has been cracked down on as part of Google’s Penguin and Panda updates. The principle was that, since backlinks are important, the more the merrier. Sites that exist purely to list hyperlinks to other sites are seen by Google as low quality, so are either ignored or actually penalised through poor optimisation. A site needs decent content if it is going to be respected.
Linking out of context
This is related to the first two, and contributes to the SEO mantra about relevance. Let’s say your web site is all about bespoke wooden furniture, and you have somehow persuaded a car mechanic to link to you. Just like you wouldn’t trust a Russian fishmonger to give you dental advice, search engines won’t deem a link to a wooden furniture maker very authoritative if it is part of an article about automotive repairs.
What do Google want?
Quality content with subtle use of links to and from quality sites.