A link tells the search engines that other website are connected to your domain name (your URL). Search engines see this as a vote of trust. If you get a link from a domain name (website) that's been around a long time, search engines will rank you better in search results. If you decide to change your domain name then all links and link popularity will be lost, your listing in MSN, Google & Yahoo will go away. You will then have to start you website promotion from scratch.
A link is either text or picture (graphic's) that when a visitor clicks on it, they are taken somewhere else. This somewhere else is either another page of your site or to another site. These links can also be in your navigation. A link such as these are in-bound links are internal linking whithin your website. You may also link to another website or webpage. These are called out-bound links.
One of the most important factors in search engine results is link popularity. This is what you would call the tie breaker, If one webpage has the same keywords you do the same amount of time as you, then the search engines will use link popularity as the tie breaker. Let's say your keywords were domain name & another webpage uses domain name as their keyword and your domain name had say 100 links to that domain name, if the other domain name had say 150 links then the other site would have be above you in the search results. Now if the other site had say 10,000 links he could have way less of the same keyword you do and still rank way higher.
The Links on the in-coming side, that is from other sites (Inbound) and out going links (outbound) should be somehow related to the content of the page they are directed to or from.
Theire are temporary and long term links. What you need is long term links. Links are like gold to the search engines and they show their worth in the search results.
Does the way you link affect your search engine results. A link from a page that's relavent to your page give you a boost in search results. Linking to sites that use unethecal pratices for their website can be bad. linking to bad sites can be like catching a cold. If you link to one of those sites, some search engines could drop your page rank & even ban you from their index. Once this happens your Finished and you will have to start all over from the beginning. Don't link to bad sites.
Make sure to use rel="nofollow" in any paid links or advertisments that are out going links.