Three way link building is where you link to one of my sites and I link to yours from another site of mine (so it's not reciprocal). It's actually frowned upon by serious SEO's. It's better to get links based on subject, instead of doing link exchanges of any kind.
3 way links were created when major search engines began to value reciprocal links less than one-way ones. So 3 way links building is the way to trick SEs
The link exists with A, B C sites. For Ex Link exists between A & B in the reciprocal terms and these two ( A & B) websites should acquire links from say website "C". http://www.walldirectory.com
I just give you one example. Like that x, y, z are three person. let x has one site and z has one site but x does not know z but x know y and z know y.so x told to y plz you will do my work and in the same way z told to y plz chage my link then y have changed link with the help of x and z then it is called three way link building.
If all the 3 domains are hosted on different servers (IPs) then it's as good as regular linking, and it works! However, if any 2 sites are on a common server, you may be alleged of gaming the search engines, and may penalties. I got one of my blogs trying 3-way linking with a stupid wordpress plugin!