I really want to understand this but don't know how to see the difference. I know the search engines frown on link farm sites. But isn't a directory just a bunch of links? So what is the difference ?
The difference is human-editing and review...directories have it (or should) and link farms don't. Link farms have no listing standards and often no real category structure. They tend to auto-approve all links. Back in the day, link farms (often called FFA or Free For All sites) were much more common than they are today. Google and the other search engines have gotten really good at spotting these types of sites.
A directory is basically its database. If it’s a good directory it will have a large database of quality categorized submissions. What is a directory without a developed database? A directory script. What is a directory that accepts anything with little to no editing? A link farm.
I think I understand but not 100% sure - are you allowed to post a example here of 1 of each for me to look at so I can see a link farm and a directory?
Not just directories. When you create a link page on your site and pile up irrelevant and unedited links there, that's a link farm. Some people create this sort of page for link exchange, and in so doing, place many unrelated links there.
The difference seems so subtle that I wonder how Google can automatically detect link farm from directories, apart for borderline case...