What is a Link Exchange?
Internet Marketing Dictionary | Link Exchange

A link exchange is the process of setting up a link to a website you don't own in return for a link back to your own site. Like most things on the internet, this process can be automated to a large degree.

In a simple link exchange you contact the webmaster of a site that you would like to do a link exchange with and if they agree you both set up links to each other making sure to use appropriate link descriptions in order to generate the best possible SEO outcome.

By buildling links to your site over time you will increase the PageRank of your site which in turn will help you get your site ranked higher in search results.

Automated link exchange websites have now been created to make the process of exchanging links very easily and some of these are more sophisticated than others. For example, many link exchanges only create reciprocal links whereas others allow you to use 3-way linking where site A links to site B which links to site C.

The search engines seems to have conflicting views about building links both encouraging you to set up links once you have built your site but at the same time encouraging you to stay away from link exchanges.