Link exchange is important. Many of the top search engines and directories rank web sites according to how many links there are that point to that site. This is called incoming links. Google considers link popularity to be an important factor in their ranking algorithm.
Some engines also rank according to how many outgoing links a site has. A site that has many outgoing hyperlinks is considered a hub or authority. These links need to be going to sites in a similar area or field of interest for that site to be considered an authority.
Relevance of links is important. It's best if the sites linking to and from you are related in theme to your site. A dog groomer could contact sites of veterinarians to see if they would like to exchange links. Everyone benefits from this type of link exchange.
Sites that are rated as popular give a bigger popularity boost to your site than less popular sites. Look for sites with a lot of traffic and high rankings at the search engines.