How do backlinks effect Search Rankings and traffic?

Search engines often use the number of backlinks that a website has as one of the most important factors for determining that websites search engine ranking, popularity and importance. Google's description of their PageRank system, for instance, notes that Google interprets a link from page A to page B as a vote, by page A, for page B.

Knowledge of this form of search engine rankings has fueled a portion of the SEO industry commonly termed linkspam, where a company attempts to place as many inbound links as possible to their site regardless of the context of the originating site.

Websites often employ various search engine optimization techniques to increase the number of backlinks pointing to their website.

Some methods are free for use by everyone whereas some methods like linkbaiting requires quite a bit of planning and marketing to work. Some websites stumble upon "linkbaiting" naturally; the sites that are the first with a tidbit of 'breaking news' about a celebrity are good examples of that. When "linkbait" happens, many websites will link to the 'baiting' website because there is information there that is of extreme interest to a large number of people.

There are several factors that determine the value of a backlink. 

Backlinks from authoritative sites on a given topic are highly valuable. If both sites have content geared toward the keyword topic, the backlink is considered relevant and believed to have strong influence on the search engine rankings of the webpage granted the backlink. A backlink represents a favorable 'editorial vote' for the receiving webpage from another granting webpage.

Another important factor is the anchor text of the backlink. Anchor text is the descriptive labeling of the hyperlink as it appears on a webpage. Search engine bots (i.e., spiders, crawlers, etc.) examine the anchor text to evaluate how relevant it is to the content on a webpage. Anchor text and webpage content congruency are highly weighted in search engine results page (SERP) rankings of a webpage with respect to any given keyword query by a search engine user.

Increasingly, inbound links are being weighed against link popularity and originating context. 

 This transition is reducing the notion of one link, one vote in SEO, a trend proponents hope will help curb linkspam as a whole.

It should be noted that although many people will say building too many links too quickly will get you penalized, it actually will not. If it were possible to be penalized for building too many incoming links, people would target their competition for penalties by building "too many" links.