There is much discussion in these last few months about reciprocal linking. In the last Google update, reciprocal links were one of the targets of the search engine's latest filter. Many webmasters had agreed upon reciprocal link exchanges, in order to boost their site's rankings with the sheer number of inbound links. In a link exchange, one webmaster places a link on his website that points to another webmasters website, and vice versa. Many of these links were simply not relevant, and were just discounted. So while the irrelevant inbound link was ignored, the outbound links still got counted, diluting the relevancy score of many websites. This caused a great many websites to drop off the Google map.
A search engine considers the content of the sites to determine the QUALITY of a link. When inbound links to your site come from other sites, and those sites have content related to your site, these inbound links are considered more relevant to your site. If inbound links are found on sites with unrelated content, they are considered less relevant. The higher the relevance of inbound links, the greater their quality.