Links are good for SEO. The link text is very important.
By linking sites together you can create a loop of links, or a pyramid, or a network.
What use are these? I actually think that they can be quite dangerous to your SEO. Conversely they can aid your SEO efforts quite a bit. It all depends on how you do it.
Google put a lot of time and effort into finding spam (for spam read unnatural) links.
Say I have 20 sites, all hosted with the same company. These sites will be on the same subnet (first few groups of numbers in your ip address for the site). A lot of links from the same subnet with the same link text is going to raise flags with google. They will not necessarily penalise you for it…. but you won’t get the results you may expect. Large numbers of links pointing to the same pages from one location are suspicious. If all your sites are on the same subnet it becomes obvious that those links are an attempt to influence search results.
How to get around it.
Building domains purely for SEO purposes does not have the same effect it once had. Domaining (buying domains for keywords) still has some clout, but not as much as it once did.
Be careful, remember, that a site that is full of nonsense will be treated accordingly. Build each site with the purpose of making that site rank well. Then links to your target site will carry some weight. Same goes for blogs. Write good information in a blog that people will reference and do not over-link to your target site. Link to different pages on your target site and only use text that is relevant to both the blog post and the page you link to.
In short. Keep the number of links down. My preference is for a pyramid structure… linking from multiple domains to one domain. I sometimes interlink the lower tier domains too – but only if it is natural for them to link. The subject matter has to be relevant.