If a backlink is a link back to your page from another website, an internal link connects two pages within your website together. In general, search engines will view sites with extensive linking favorably. Think of a site like Wikipedia, where all of the content is linked together to provide deeper meaning, or an entertainment site like Cracked.com where one article leads seamlessly to the next. Internal links signal to the search engine that your content is rich, and rich, deep content is currently rewarded by high page ranks.
With that said, you don’t want to overdo it. Too many links will start to appear spammy and will stop boosting the value of your page. In fact, the presence of apparently spammy links can actually cause your page to lose its rank. Therefore, use your internal links judiciously: Avoid stuffing them in where they don’t belong.
One difference between internal and external links that you can use to your advantage is the use of keywords. While keyword-based backlinks are no longer effective, internal links are free to use keywords. In fact, they’re encouraged to do so when it makes sense. For example, imagine that you run a website that sells shoes. On this site, you might have a page describing women’s shoes. When you mention women’s dress shoes, you would naturally discuss high heels, and linking “high heels” to your page about that type of shoe makes perfectly good sense.
