An Inbound Link is a link from outside your website to inside your website. The location of the link must be visible to search engines in order for it to be "counted" as useful. (In other words, a link from inside an intranet would not be considered an Inbound Link of value, because search engines cannot see it).

The three ways an Inbound Link helps your website

1. Short term: as soon as you make a posting to, for example, a popular forum on the Internet you will likely get some immediate traffic to your website over the first minutes and hours your blog posting is in existence. Readers (capital "R" for automated Readers that pick up changes on a website and inform subscribers that a page has changed) let people know immediately that something new has arrived and they go look at it.
2. Medium term: Over the following weeks and months, stragglers trolling the Internet stumble into your website by following the link to your website.
3. Long term: In many cases, an Inbound Link will live for years, perhaps decades. Each surviving Inbound Link is counted to support your Google PageRank which will benefit you for years to come. This is what they call it the "long tail". For good or bad, stuff that happens on the Internet sometimes lasts for a very long time indeed.