A link exchange is a confederation of websites that operates similarly to a web ring. Webmasters register their web sites with a central organization, that runs the exchange, and in turn receive from the exchange HTML code which they insert into their web pages.
There are two major purpose of Link-building SEO: to boost traffic to your site and to enhance the website’s ranking in the major search engines. If you have more incoming backlinks to your website, your ranking will also get higher. But it’s not only with the number of incoming links to your site but most especially with the quality of incoming links. So in order to be in the top position in major search engines your website needs to have link popularity. And most of the SEO success is due to link exchange.