Google rankings are influenced by a number of factors, including links.
Adding a link to another site alerts Google that you verify that the website you
are linking to has some credibility. If that website links back to you, both of your sites lose a lot of the impact of the link. This is because the recommendation becomes less credible.
If a site with a high PageRank links to you, with a one way link, than that is considered a very good recommendation of your site. The lower the credibility of the linking site, the lower the link is weighted by Google.
If the link to your site is done using anchor text that looks like this example, Google rates the link higher.
Linking to link farms is bad for your sites credibility.
The system of ranking by Google is very logical. They aim to put the best possible results on the top and first page of their Search Engine Results Pages (SERPs) for every search.
If your site is optimised, Google will rank you higher.
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