Link baiting is making a site or article or blog post that has a popular topic or something controversial. That way people link to site or post and you get free backlinks. If you have a controversial post people will talk about it good or bad people will list it on thier site and you will get some free deep links to that page.
Link baiting- coming up with an attractive product, concept, article, and so forth that people like, talk about it in on their websites, and link to your homepage.
You can read this nice Article, hope it helps http://www.mattcutts.com/blog/seo-advice-linkbait-and-linkbaiting/
I have a few doubts about Link Baiting.. If somebody likes an article on any theme, example "Internet marketing", and should he want to do something in addition to bookmark the page.. Would he actually put a link on finance website knowing that the theme is not relevant. A hypothetical case. Or even if it were relevant, would somebody be Good enough to let the visitors sweep through the link to the competitors' article... I know that not many people have there blogs so that they write bout there experiences with such articles and put a link. As my reaction to a good article, example "Matt Cutts' " article, I would search on the theme and compile my opinion and form a content. Please tell me how could I contribute towards the success of the theme "Link Baiting", since I do not know when and how to appreciate articles by linking to them.