In How to Write a Killer About Page and Writing Great Content: 3 Tips, we talked about the importance of making your site "sticky" by providing plenty of internal links.
Internal links keep your visitors clicking around your site, exploring all the good stuff you have to offer (and increasing your pageviews in the process, which is especially helpful for monetizing).
Internal links are good, but we can make 'em better. How? With great anchor text.
What is anchor text?
Anchor text is the visible part of a (hyper)link. For example, see those two posts I linked to up there in the first paragraph? "How to Write a Killer About Page" is anchor text. "Writing Content: 3 Beefy Tips" is also anchor text.
The part of the links you don't see are the URLs of each of those posts. For example, the following is a link in all it's HTML glory. 
The stuff between the "<" and ">" sets isn't seen; the rest is your anchor text.
<a href="http://bloggingwithamy.com/how-to-write-a-killer-about-page/">How to Write a Killer About Page</a>
Why is anchor text important?
Anchor text is important because search engines use it to help determine how the destination page of that link will rank. If you make the anchor text strong and keyword-rich (as opposed to something like "click here"), the chances of that page ranking better are increased.
What makes anchor text strong?
Keep in mind that it's the destination page of the link that gets the SEO benefit of good anchor text.
For example, when I link to How to Write a Killer About Page in this post, the page that benefits SEO-wise is How to Write a Killer About Page, not this post (How to Use Anchor Text).
This will determine when you will (or won't) use strong anchor text.
When to use strong anchor text
When you use strong anchor text, you are, in essence casting a positive vote for the page to which you are linking.
Obviously you always want to vote for your own pages, so always use strong anchor text when linking internally.
Another time you might want to make an extra effort to use strong anchor text is when you're linking to another site — perhaps a friend or blogger that you would like to share a little "link juice" with. It's always nice to share some link love with a fellow blogger.
There are times when you might choose not to use strong anchor text, but to simply say something like "You can read her post [here]." (Ex. Responding to a nasty comment someone left on your blog.)
The thing to ask yourself is, "Is the site/post I'm linking to something I want to cast a favorable search engine vote for?" If the answer is yes, use strong anchor text.
I had no idea! Thanks for sharing.
Thanks for such clear explanations! Some of us (like me) are still unclear about all the blogging / SEO terms (even after blogging for over a yr) – so it really helps to have explanations that are easy to understand with good examples! Now, I understand this more!
As a new-old-clueless blogger, I have to say thank you so much
All of this is difficult for someone with—- SQUIRREL!!!!!!!!!! —-ADD 
(Sorry!) I kid, I kid! 
I have a short attention span and two children 2 and younger so I seem to be progressing slowly but I keep telling myself slow and steady wins the race 
Once again, thank you so much..from the depths of my heart
I always wondered if it worked that way! Thanks for clarifying that for me!
How important is it for the anchor text to be the same as the title for the page you're linking to?
I do try to link back to previous blog posts and to use the title of the blog post but sometimes that title doesn't read correctly for the sentence I'm writing. Is it OK to modify that for the anchor text so it makes more sense?
Duplicating the post/page title exactly is not essential. The important thing is that the anchor text contain keywords, however it is worded. Hope that helps!
I do love how you put those other links in your posts, very helpful.
I was wondering, what is the difference between anchor text or link? Or is it the same? Sometimes I think they just make those things confusing in purpose for newbies
Thank you soo much!
Anchor text is the text which indicates a link. Not sure if that makes it any clearer. The bottom line is, they are sometimes used interchangeably.
Thank you for such a clear explanation! I didn't understand what 'anchor text' was. Now I do!
I have always justused here or this. never thought about it. thanks
Thanks Amy. I LOVE your site….LOVE IT! I really appreciate all of your help.
You are so welcome and I'm so glad it's been helpful!
This was so very helpful and I linked your post to my blog.
http://www.mun-emakingblogs.blogspot.com
Wow. You are so SO good at making thinks easy to understand, even to a techno-stunted person such as myself. I really appreciate you sharing your knowledge!! Thank you!
Thank you. I'm glad it's helpful!
Does WordPress do this automatically when you complete the title section and install the link?
If I'm understanding your question, the answer is yes.
THank you! Sometimes I just link to "here". I had no idea about the SEO advantages.
You are always a wealth of information. Thanks for sharing!
My pleasure!
I was just talking about this with another blogger. Thank you. I am horrible at titles too and trying to improve. I appreciate the time you put into your posts and the tips you share.
I really enjoyed your article. Thanks for sharing it. I think all of our writers at spunkybean read it. Keep up the great work.
Thank you so much for this information. Like many others, I had no clue this was important. I think I have some work to do on my blog and website…!
Yeh I agree!! Anchor Text is also important but everyone should focus in contents and internal link buliding.
Thanks for the reminder. I always try to use anchor text. But I heard someone say not everyone realizes they should click that link and that a "here" is more directive to get a click thru. I kind of think in today's Internet age, if you are on a blog….you know what links are and don't need directed "here".
I also like the concept that if you are using a lot of anchor links within your own blog articles that point to your other articles, if someone scrapes your entire content, they'll inadvertently be pointing a lot of links back to your own site. Not a full vindication of their malicious actions, but it's nice anyway.
Do I need to reset something? I cannot read your pages because they do not fit on my screen and there is no bar to slide over.
Karen, I wonder if maybe you have zoomed in on your screen? Try going to the View menu at the top of your browser and then Zoom Out. I hope that works!
I just started my blog. ( i never would have tried if i didnt stumble on your site!) Do you have a step by step guide to adding anchor text in wp? Is there a plug in, or what? I'm only 3 weeks in, and not very techno savvy.
Hi Amy, I think this video tutorial will help!
I just landed on your website looking for something else, and then came here because of 'anchor text'! I didn't know it was called that! Your explanations are very clear to understand. I'm sure I'll be spending more time here! Thank you!
You're welcome. Glad it was helpful!
EXCELLENT SIMPLE explanation..you are so helpful!