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When you are reading something online and you see that a phrase within a sentence or paragraph is a live link, the link text is what is called "anchor text." This is because it acts as an anchor to the link. Here is an example:
If you are a blogger, then you should be using article marketing to drive traffic to your blog.
In this example, the underlined copy -- the anchor text -- would link to content related to that phrase.
Anchor text is also what Google and other search engines use to rank backlinks. A website that is linked to from specific keywords will rank higher for those keywords. Links that use text are weighed more heavily than links that use the URL. Here are two examples of a URL link:
You'll notice that one included the "http://" and the other one didn't. It doesn't, to my knowledge, make a difference which you use. However the former (that starts with the "www") is easier to read, and sometimes readability counts. Use your best judgement in this case.
You use the anchor text because it gives you more search engine juice and can improve clicks.
You use URL links or context or to help readers who might be reading your content in a text format that doesn't support anchor links.