When it comes to link building, there are multiple ways to do it, and I do them all. Some I still do because they work, and others I gave up on because I didn't see any results. Let me tell you a little about what is working right now. I like to call it distributed link building.
Consider your money site, the site you want to rank #1, how difficult is it to get relevant links to that site? For me, it's almost always very difficult because my sites are in small competitive niches. That means link buying is hard to do because I have 11 major competitors and they're not going to sell me links. Most other websites listed in the top 100 results are corporate comparison sites, wikipedia listings, and a lot of other junk not worth the money. So I'm left with a few options, here is where the distributed link building comes in.
Distributed link building is simply a process to gain links from across a wide variety of sites, but not directly linked to your money site. These links that you're building should not go directly to your money site, firstly because they're not relevant, and secondly they aren't good links, they're just any links you can find. So where do the links point? To your "Level 1" sites.
Level 1 Sites
Imagine a pyramid with your money site at the very top. Level 1 sites are sites and properties that you own or control.
Level 1 sites only link directly to your money site and authority sites (Wikipedia, Government sites, About.com, CNN, MSN, etc). Level one sites don't have ads and don't sell products, they only pass link power to your money site. Level 1 sites should be related by a single keyword, but not competitors.
If you're money site is about Madera Website Design then your level one sites will be related, but not competitors. Your Level 1 sites would be "Madera Interior Designs", "Free Madera Websites", "Website Design Tips", etc. You want to keep the keywords related so when you link to your money site, you're linking from related sites.
Depending on the size of your niche, and the profitability of the keywords you're targeting, these sites can be your own domains, HubPages, free blog hosts, WPMU sites, etc. If you can afford it and the keywords are very profitable, build out 5 or 10 of your own sites that link to your money site.
Level 1 sites need some decent links. I like to start with a few good directories like Yahoo! Directory, DMOZ (might never get approved, but it's worth a few minutes of hassle) and Ezilon Regional Web Directory (Especially good for local sites).
Level 2 Sites
Level 2 sites take on the role of Best Supporting Actor in your production. I generally have 50-200 of these sites for each of my Level 1 sites. It sounds like a lot, and if you're doing it manually, it will take you years. I suggest automating (not outsourcing) as much of this process as you can afford.
These Level 2 sites link up to Level 1 sites and also link to each other. Level 2 sites don't ever link to the money site, they're only supporting Level 1. These sites aren't designed to ever get traffic, rank for anything or make any money so don't waste time with design, layout, content, monetization, etc.
Level 3 Sites
If you don't have the means to automate and aren't in an ultra-competitive niche, you can stop at Level 2. I generally stop with Level 3 sites. These sites are just junk sites that have a single page of content and a link to a Level 2 site. You can rip article directories for the content, spin it and use it. It doesn't matter if the content makes any sense, nobody but search engine spiders will ever see it.
Instead of building Level 3 sites, you can substitute with automated link building. Use your imagination and think about ways to get a lot of useless links. You want Level 3 sites to get indexed, once they're indexed, that's good enough.
Tips and Future Ideas
1. After a first round of building Level 1-3 sites, you can further increase linking power by creating additional Level 1 sites. That seems to be the best way to add additional distributed linking power.
2. Automation is absolutely key. Depending on your level of experience, willingness to spend money, knowledge of a programming language and resourcefulness, there are a lot of ways you can automate everything in Level 2 and 3.
3. Junk links to Level 2 and Level 3 sites can be literally anything. No Follow, Referral links, bookmarks, comments, bulk purchased links, literally anything, you want a spider to stumble across your site.
If you have any questions, please post a comment and I'll do my best to answer it!