A link farm is a website whose purpose is for constructing links between member sites. For example, a link farm will create a link page that needs to be on all of it’s members pages. This can be spotted by Search Engines. Some link farms now have multiple link pages to make it harder for the Search Engines to spot. However, this technique is sure to be caught at some time. Link Farms should be avoided as they are a violation of most Search Engines’ policies, their use may hurt your site’s link popularity, and may result in a ranking penalty. I do not recommend using them.
Don’t confuse link farms with blogrolls. A blogroll is a list of other blogs that you link to from your blog. While many times blogrolls contain reciprocal links, blogrolls are in no way, shape, or form the same as a link farm.
At one point in time, many Search Engines were not fond of interlinking all your websites together. However, with the advent of blogs that has all changed. Several years ago when I was monitoring baby related search terms weblogsinc kept showing up in the results. When I looked at their blog network, I was just SURE that they were going to be banned by google for excessive interlinking of sites. But they never were banned! Realizing the power of being able to interlink all your blogs together (wheter related or unrelated) without a Search Engine penalty I decided to see if I liked blogging. It turned out that I did enjoy blogging and started building a blog network of my own.