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When someone submits a link to your site you may request or require a reciprocal link placed on their site. A reciprocal link means that somewhere on the page they supply as their reciprocal link url they have a link to your site. (The 'reciprocated with' option allows for them to link using a redirect instead of a direct link, if acceptable.)
Exchanging links helps both webmasters by increasing their link popularity, which is important for traffic and search engine placement.