Some webmasters own multiple sites and try to build up one of their specific sites by offering link exchanges from their other sites. In doing this they add a link to you on their other site and get you to link to the main site they are trying to build up.
There are legitimate reasons to do three way links, but most of the three way linking partnerships can be dangerous. The real problem is that if their two sites are not connected and they are primarily working to benefit the link popularity of their main site then it does not really hurt them if the site linking to you gets banned. If those sites get banned then they parse no link popularity to you. If people you do not know want you to trade three way links you should do a bit of investigating before just saying yes.
What Is 3 Way Linking?
For those of you who may not know what a three way linking strategy is, it’s a system that uses a method of linking where site A links to site B, site B links to site C, and site C links to site A, like this:
Therefore, rather than one site benefitting from a one-way link, all 3 sites get what Google sees as a one-way link to their web site.
This also differs from the old reciprocal linking method, where site A links to site B and site B links back to site A, a strategy which Google seems to no longer value.
The power of linking three ways is that Google sees each link in the 3-way linking exchange as a one-way link and gives it the same full ranking value of a one-way link.