Anchor text is the wording used to represent an active link visually on a web page. This is something that should never be overlooked at webmasters, because neglecting it can land the sub-pages of your website in the supplemental results (less important pages) of search engines.
Search engines crawl the web constantly, following links to find and index information within web pages to later provide relevant resources for peoples many various searches. They Index pages that contain text related to topics, and due to the massive amount needed to be processed in a very short space of time, a link may not be considered should it contain no anchor text.
In other words, search engines give weight to the text that is attached to a link and follow that link if the text denotes something relevant to a query. The text ‘points` relevance at the page it is referencing, and the search engines continued interest is based on that text.
Search engines also consider the ALT attribute value of an HTML image element as its anchor text, so this is another point not to be neglected when throwing together or optimizing a website for search friendliness.
Read my article on the truth about anchor text for more info.[Edited 18 July 2007 11:38am – Corrected Category Selection (Brett)]