By placing links, both internally and externally to AND on your site you will gain credibility with the search engines. When done improperly, it can backfire and cause problems. Often some SERIOUS problems will result!

You can link keywords within your site to related pages. You can also provide links to the same page, but use caution and do not repeat the same keyword anchor text instead alter it for other keyword anchor text.

Wikipedia Quote: http://en.wikipedia.org/wiki/Anchor_text

Anchor text usually gives the user relevant descriptive or contextual information about the content of the link's destination. The anchor text may or may not be related to the actual text of the URL of the link. For example, a hyperlink to the main Wikipedia page might take this form:
Wikipedia

The anchor text in this example is Wikipedia; the complex URL http://www.wikipedia.org displays on the web page as 'Wikipedia', contributing to a clean, easy to read text or document.

As another example, if you have used the words 'list building' for the anchor text in one link, you could use something like, 'list building with Alex' for another link. This way, you have variety in your keyword phrases and the linked pages will be relevantly defined. This gives you more chances to rate with the search engines, as you will have more and different keywords for the crawler to find.

Link building can increase traffic to a site by increasing rankings with search engines and by generating traffic from the links. The search engines recognize the links and increase the visibility of your site. If links are from sites that are relevant to your site then 'quality and targeted' visitors/traffic is achieved.

I will offer a car linking example. If you have a website on car accessories, it would only be logical and practical to link back and forth to sites that are related to cars or vehicles only. This is called targeted linking. If you ask for links from completely unrelated sites, like cosmetics or linen vendors, it will be obvious to everyone that the sites are not well matched.

As a web marketer, the only way to get targeted traffic to a site about cars from a site selling baby toys is to include links that relate to toys for babies to play with while traveling in the car. So make the connection and get 'relevant' links.