Site citations
In essence, the search engines view a link to your site from another site as a "vote" for your site by that other site.
This web site "voting" methodology was first suggested by a computer science Professor, Jon Kleinberg; then turned into a practical reality by Larry Page and Sergey Brin - the founders of Google - through their "Page Rank" system.
For more information on the background to this methodology, see "The Anatomy of a Large-Scale Hypertextual Search Engine", which was Larry Page and Sergey Brin's research paper that formed the basis of what we know today as the Google search engine:
http://www-db.stanford.edu/~backrub/google.html
Their description of how to rank sites within a search engine's index became the basis of Page Rank, which has been used by Google for ranking purposes since its inception.
