Link wheel is the process of creating some new blogs or micro-sites on a particular topic and write a unique content of about 300 - 500 words on each of those blogs created. And give link to your main site. http://buildmylink.com/articles/Link-Wheel.html
Link Wheel is a type of link building to give your site backlinks by connecting sites to sites. There are many types of this link wheel. And there are issues regarding if it is a black hat technique or white hat. You can read more by searching on google.
Here is the original design of link wheels. It was one of the most creative uses of web 2.0 properties. Here is the concept: 6 independent web 2.0 sites, all with high Page Rank values, create a link to your site. And each of the "spokes" create a link to it's neighbor - forming the wheel. The reason for the link to the next web 2.0 property is to increase the link juice going to each spoke - which, in turn goes back to your site. The "hub" is any page on your website. On each of the 6 sites on the outer wheel we added content optimized around a single theme - a single keyword phrase.