A backlink is another site linking to your site. Backlinks are the main ranking factor for google and most other search engines. When you exchange links this is a backlink correct and its called a reciprocal link. Reciprocal links have less benefit in terms of improving your search engine placement as a one way backlink would, a one way link being a site linking to yours but you are not linking back. Many ways to obtain both reciprocal links and one way links.