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.
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.