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A link exchange is basically;
"i place a link on my web page to your web site, and you place a link on your web page to my web site"
That is it.
If you want your web site to get popular and get more visitors, you need incoming links.
There are three ways of getting other web site to link to yours;
+ Pay web sites to have your link on their site.
+ Exchange links, you support your incoming link by linking back.
+ Sit and wait until somebody finds your site interesting enough to place a link.
Paying for your incoming links is an expensive affair.
You are looking at 25 to 50 dollar per link per month and upward, and you need lots of links.
Waiting for fame to happen is not an option, you understand.
This is, in short, why you should exchange links.