Link equity is the concept of the influence of links on a pages ability to rank for particular search queries. Link equity takes into account things like relevance, authority and trust, link placement and accessibility, the positive value of relevant outbound links, and the like.

External links can generally produce higher ranking values and even more ranking boosts than internal links:

Although internal links can still give more ranking value and potential for many pages that may get some or no external links can still rank well if a domain itself is well linked to and that page is on that site and has links from other good, important pages on the domain.

Pages that are well linked both external and internal will pass on more link equity than the pages which are poorly linked:

This is the easiest to understand as a concept of PageRank. If a page consists of many links from other pages and especially important or highly trusted pages then the page will have a higher ability to pass its link equity onto other pages.

Pages that may have fewer links are more likely to pass on equity to their targets than pages which have more links:

A page that has thousands of links on it, each of which will receive a small fraction of the link equity that could have been passed to it than a page which contains only a few links. Say if you had a page that had hundreds of links in a row and you instead made that page have only a few links to the most important, most valuable places, you’ll get more equity out of that, more rank boosting ability.

There are a few tricks such as ‘nofollow’ which are often ineffective at building the flow of link equity:

Using rel=”no follow” or embedding a remotely executable JavaScript file that makes it so that browsers can see the links and users can although Google is unlikely to see or follow those links, to build the flow of your link equity is generally a poor use of your time, because it doesn’t affect things that much such as the old-school PageRank algorithm is not hugely important anymore. And Google is often pretty good at interpreting and discounting these things. So it isn’t really worth your time.