When one site links to another it is seen by the search engines as a "vote" for that site and you get scored accordingly. When that link comes in from a high PageRank site it counts as even more. When you get enough of these positive votes and scores, your site gets listed higher in the search engine results pages (SERPs).

Without going into a lengthy dissertation, it is beneficial to getting listed in the Top-10 to have links coming in from as many sites as possible. That is how reciprocal linking got started, and why many webmasters receive email requests to exchange links on a daily basis.

But over the course of time this method of acquiring inbound links has faded. The reason is the basic nature of the exchange ... you link to me and I'll link to you. This is pretty easy for the engines to figure out, and they now place less score emphasis on reciprocated links. What you really want are one-way inbound links pointing at your site. They are harder to come by.