Internal linking is connecting your own pages with links directly within the text. It serves three purposes: it guides the visitor to the next step, it distributes authority between the pages of the website, and it signals to search engines what the target page is about. This is exactly what anchor text is for, i.e. the words the link is placed on – it should describe the destination, not sound like "click here". In practice, it is recommended to link from content-strong pages to those the company wants to strengthen, to limit the number of links to a reasonable level, and to keep important pages within a few clicks of the homepage. For larger websites, it is worth keeping a record of links, because it is precisely internal links that break most often after a redesign or migration.
See also: Click depth, Orphan page, Content cluster and pillar page.
