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Simply put, Google ranks a website based on the number of other websites that have links back to it. The logic behind this is that if you have high-quality, relevant, interesting and useful website content, other website owners are likely to link to your site from theirs. Every link back to your site is a 'vote' for the quality and relevance of your site. Click here for Google's own advice on this. As a result, it is essential to build up a network of links to your site from other sites...
What's more, the quality and relevance of the sites linking to yours is vital. One link from another high-ranking website, with content that's relevant to your own content, is worth more than multiple links from a lower-ranking, irrelevant site. And there are dangers involved too. Google knows the techniques used to build up links to artificially influence its results - and penalises those engaging unethical practices. Paid links, links on 'link farm' sites, etc can actually have a negative effect on your listings.