Anchor text is the visible text in a hyperlink. Anchor text is weighted (ranked) highly in search engine algorithms, because the linked text is usually relevant to the landing page. The objective of search engines is to provide highly relevant search results; this is where anchor text helps, as the tendency is, more often than not, to hyperlink words relevant to the landing page.
Usually this is exploited by webmasters to procure high results in SERPS (search engine results pages). Google Bombing is possible through anchor text manipulation. Much has been written on anchor text which is available on the web today.
Although the search engines are well aware of anchor text manipulation, not much change can be expected in the SE algorithms in the near future because the brighter side of the picture cannot be overlooked: anchor text delivers relevance.
The latest changes in Google’s algorithm point towards discounting of websites in the SERPS which are involved in anchor text manipulation for higher rankings. Although there are no indications of this clause (of the latest Google patent) having been implemented, this could become a reality in the future.