A lot of one questions for one post... :-)
You are right, a link is a link from one site to another OR to another page on the same site.
You can have a "relative" link on your own site (/contact.htm) or an "absolute" link (http ://www. somedomain.com/contact.htm).
Links to other sites have to be absolute. If you also use these on your site they seem to work better for linking, but I have no proof. And they are more work to maintain if you change things on your site.
I don't think the problems you describe with what was done before are so much to do with linking, but more with site design, content, and throwing together a bunch of sites quickly. If the sites are not good or somewhat the same in nature, that is easy to detect and get hurt for.
All your sites being on the same IP CAN be a factor, but we have 11 classified ads sites all on the some IP, all use the same basic site template, all link to each other. And all of the sites have PR4 and good traffic.
So why to they work? All of the sites have a lot of content and each site has different content. Each site has a directory of information for it's topic and classified ad content that is also for it's topic. The other thing is that the sites were not all launched at the same time. We built one and then worked on the next. I think it took us about a year to launch all 11.
If the IP factor was really important, all the sites that are hosted on a single IP at a hosting company would also be hurt...
So, as some that build lots of crappy little (or big) sites know, quantity does not always coount for much if you don't have any quality.
If you can go back to those sites you have and start working on each one to add content, change the design, or even put an whole new site that is better and start working on them like that I think you will have better results. This is in addition to SEO and submissions.
If you are curious about our sites, here is the list:
Auto repair equipment, mechanic's tools, auto body equipment, and car
Free RV, Motor Home, and Travel Trailer Classifieds
Free Heavy Equipment and construction equipment Classifieds
Free Home Medical Equipment Free Classifieds
Free Medical Equipment Photo Classifieds
Free Photography, Photographic Equipment, and Digital Camera Classifieds
Free race car classifieds to buy and sell cars, autos, performance parts
Free Restaurant Equipment Classifieds
Free Toy, Game, and Collectible Classified Ads
Go kart classifieds at GoKart2000.com - new & used go karts
Free Vending Machine Classifieds