Google's PageRank algorithm views links from one webpage to another as votes for that page. Therefore the more incoming links (votes) a page has, the higher it should appear in Search Engine Results Pages (SERPS).
However, all votes are not created equal. Factored into the equation is the importance of the 'voting' page and the total number of links on that page.
This is, of course, a simplification of how Google determines Search Results, there are many refinements designed to enhance the results and scupper attempts to manipulate the system, particularly TrustRank. TrustRank values websites according to how closely they are linked to a number of 'seed' websites, e.g. links to trusted sites such as the BBC website are a good indication that the site isn't 'spammy' and, more importantly, links from trusted websites imply that the content is valuable.
The original PageRank algorithm judged each web page as an individual entity, regardless of the web site it was found on. Another enhancement was to consider the whole domain individual pages were found on. This is the reason you can work for years to rank well for a good position in Search results, only to find an obscure news item or new wikipedia article can suddenly appear above you. The fact is these appear on authoritative domains and are therefore more 'trusted' than you.
For a more detailed explanation of Domain Trust and Authority, I highly recommend Scott Willoughby as SEOmoz...
Getting good results in Search Engine Results is important for the success of your website, and you need links from a broad section of authoritative, trusted websites. The best way of achieving this is to make your website content 'linkable', original, entertaining, valuable and interesting content is liable to be shared (e.g. on social networking sites), reported or referenced (e.g. on news sites) or used to enhance the existing content on a website.