It's well documented that Google's algo is based on many things, some little understood, but links certainly play a significant role. If your site is linked from other sites, or more precisely your pages are linked from other pages, there's a good chance they will benefit, but why is this and is it a fair and reliable metric of a site's quality?
First a little history. Sergey and Larry were PhD students when they created Google as documented in their paper The Anatomy of a Large-Scale Hypertextual Web Search Engine. Incidentally this paper was presented at WWW7 in Brisbane, Australia in 1998, the same conference where I presented this.
Their paper states;
"Academic citation literature has been applied to the web, largely by counting citations or backlinks to a given page. This gives some approximation of a page's importance or quality. PageRank extends this idea by not counting links from all pages equally, and by normalizing by the number of links on a page."
In essence a page is ranked based in the number and quality of links it has. In an academic environment where papers are peer reviewed this system, for the most part, works well. However in an open market does this still hold true? Probably not.
Increasingly when I talk to people they decry the results thrown up by Google suggesting few of the results for a given search match their needs. Furthermore there is also an issue of the general population assuming a number 1 position for a search result is held by the 'best' page as quality is pretty much implied by being top of Google. This is also flawed.
I haven't got the answer but it's clear in search land that the cream is not always floating to the top. Google and the other search engines have a mind bogglingly complex task to improve their search results but I'm sure they do recognise they have to.
This is all well and good but how does this impact on simple website owners such as you and me? In essence I'd suggest you stop link spamming and concentrate on improving the quality of your user experience and content.
Ultimately, you would expect, the cream will rise to the top. If it doesn't Google is doomed because people will stop using it, dismissing its results as irrelevent, something many people already do!
I've got every faith in Google and I'd lay good odds that those who work hard on their sites will win the day and the link junkies will fade away.