One of the main ways that Google decides which sites are "better" or more relevant to a particular search than other sites is by the number and quality of incoming links the site has.
An incoming link is a link that takes a visitor from some other site into your site.
These links are usually called "backlinks", which is a horrible name, but since it's sort of the industry standard, we'll use it here.
The main idea is this. The more backlinks your site has, the more popular it must be. If people like your site, then it must be more relevant than similar sites for a particular search term. Which all means that Google will rank it higher.
It used to be only the number of backlinks that mattered.
Internet marketers quickly figured out they could game the system and just create sites full of links to other sites in order to rank those sites higher. Google fixed that with the idea of TrustRank-which basically means that links from "trusted" sites count more than links from any old where.
For instance, a link from a .gov site would be highly trusted. So would a link from an .edu site.
So now, it's not only the number of backlinks but their quality that matters. At the moment, Google still looks at links from many directories such as Yahoo!'s directory as "quality" links. So the benefit you get from listing your site in a directory is in getting the link from that directory.
You'll get more benefit from paid directories than from free directories. It's hard to measure this, but I'm of the opinion that links from free directories are next to worthless. I have seen some increase in traffic from some paid directories.
There is one paid directory that really will give you a boost in traffic and that's Yahoo!'s paid directory.
Yahoo!'s paid directory is not inexpensive. It costs about three hundred dollars per year. That's not for inclusion either! That's to have them look at your site and decide if they are going to include it.
If you're going to pay this much for a directory listing, then you'll want to hold off on monetizing your site before it gets listed on Yahoo!. As with all directories (or most directories), there seems to be a bias against commercial sites.
I have seen a fairly large increase in traffic when one of my site's gets listed on the Yahoo! directory. I don't think this is because of the direct traffic through Yahoo!, but because Google really values that link from Yahoo!'s directory to the site.
After being listed on the Yahoo! directory, I've noticed that Google ranks my site higher for several of the keyword phrases. Yet another clue to the SEO effect of Yahoo!'s listing.
Directories are great for increasing your page's rankings in the search results. So, they definitely need to be part of your off-site SEO strategy. In all honesty, however, there are other things you can do that will have even more impact.
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