Link exchanges are simple. The concept doesn’t have much of an underlying theory. It’s exactly what it sounds like. Websites exchange links with each other to generate traffic. One website owner may offer to advertise another company’s website through a logo, text, or banner hyperlink. There are also web ring programs that promote websites and help developers exchange links for a fee. These methods will benefit both customers because it gives each website owner the ability to generate traffic in a rather passive manner.
Make it simple, link exchange means exchange link with each other, A give B link, and B give A link It is sames as money exchange, the only different is just the object (money/link)
Link exchange is when a site allows you to drop links in their site, and at the same time you let theirs links have a position on your website.