Link building is coercing other websites to link to yours, for the sake of the click-through traffic from visitors to that site, as well as to convince the search engines that your site is more important than comparable sites and that it should rank higher in search results.
Link building can take many forms. Common ways include posting to social networks, article sites, and video sites. As well as issuing press releases, guest blogging, and commenting on other blogs.
Ideally, good content on a website will naturally attract links, and a good syndication network will help that along. But in an attempt to game the search engines for artificial high rankings, some site owners will create large numbers of low quality using automated tools in spammy ways. While there are good arguments for some level of automation, pushing the limits of link building tools without the content can back it up is not only an ethical issue, but can lead to sites getting banned from the search engines.
The use of hacking or spam of low quality content to rank a site (often in a pump-and-dump scheme) is considered black hat link building, as opposed to traditional and approved white hat link building. It generally involves abusing tools such as SENuke, Scrapebox and XRumer to post huge amount of junk content.