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Search engine optimization (SEO) is the process of improving the visibility of a web site or a web page in search engines via the "natural" or un-paid ("organic" or "algorithmic") search results. Other forms of search engine marketing (SEM) target paid listings. In general, the earlier (or higher on the page), and more frequently a site appears in the search results list, the more visitors it will receive from the search engine. SEO may target different kinds of search, including image search, local search, video search and industry-specific vertical search engines. This gives a web site web presence.
@kakal very long and detailed answer BUT it is worthless because it does not answer the question that was asked. I will leave it as it is half relevant.
Link building is important because Google takes into account how many back links you have when deciding where in the list of results for your key words your site will be placed. Now it is not just quantity of back links that count but also the quality of the sites the links are on and the relevancy of those sites to your site. examples (note these are examples only I do not know the actual figures) a link from1 PR4 is probably worth 100 PR1 links so the higher the Page Rank of the pages you have your links on the better. Also relevancy plays a part as well. I would suggest that Peter will be able to give you more info on this and I will ask him to take a look and reply to you.
Its important because Google's algorithm is made up of three primary variables when ranking sites: 1. Content (keywords, domain name, tags, etc.) 2. Activity (traffic, RSS subscriptions, comments, updates, etc.) and 3. Links (inbound, outbound, etc.). When it comes to Links I can't stress the importance of "Quality Links", meaning you need links from "Quality" websites.
It is so important because of online visibility in major search engines like google, yahoo or bing. More relevant your back links you will be more visible on the internet as a result of SEO link building.
