There are two types of links which helps Google analyze the real worth of them and take steps to improve their search algorithm responsible for presenting the best search results with respect to the user query. These two types of links are - "Do Follow" (which are mostly natural links and passes full seo value) and "No Follow" (which are not natural in normal cases and do not pass any seo value). Do follow backlinks or in simpler terms normal web links helps Google to correctly identify which sources on the web are popular and relevant. This is one of the criteria of Google for accurately judging the popular sources on the web based on the number and quality of Do Follow links and ranks them accordingly. Because of the high value of Do Follow backlinks, some webmasters creep into the bad practice of selling links that pass seo value and this is when Google takes manual action or applies penalty against the site by decreasing the Page Rank of the site as well as its rankings. Here, the question arises, how does Google identify which links on the site are paid and which are non paid.
Now, have a look at this video from Matt Cutts, head of Google Webspam team where he explains about how does Google identify which links are paid and which are non paid?
Why Paid Links Are a Violation of Google's Guidelines
Google Disavow Links Tool
Google Reminds of Taking Action Against Sites That Sell Page Rank
How to Design Seo Friendly Web Page
Links from Article Marketing Sites
No Follow Vs Do Follow
Top Ways to Get Natural Backlinks
Secret to Link Building
Google's Take on SiteWide Backlinks