Site Architecture: Optimizing your Internal Links
Cross-linking Two Sites
When dealing with two sites you want to cross promote there are certain linking structures that will give you the most bang for your buck. Two sites that are fully meshed will result in the higher PR site having it's PR lowered and the lower PR site having it's PR raised. So unless you want to sacrifice some of the first site's PR to help the second site you shouldn't fully mesh two sites.
If you're purposely trying to siphon off PR from one site to help another there are better schemes than fully-meshed cross-linking to consider. If the site that needs the PR doesn't link back to the one that is sending it the overall benefit for the site that needs the PR will be larger, as shown in the following diagram:
By sending it's received PR to it's sub-pages and then back to its homepage Site B is almost effectively doubling the PR that it's homepage gets from the Site A link. This same PR structure can be used to launder PageRank.
For more on cross linking two sites, see this article on the Hub & Spoke method.
Laundering PageRank
Laundering PageRank refers to the process of redirecting the weight gained from off-topic sites or links without keyword rich anchor text to weight that is gained from such places. It is a very simple process, and if you've followed the advice presented thus far you're already doing it. However I want to explain this concept because I feel that it does a good job of illustrating how PageRank works.
Pretend you're selling widgets but most people don't link to you using the word "widgets." The end result is while you're getting PageRank from your incoming links it isn't helping you a whole lot in the search engines. So what you do is link to your sub-pages and then back to your homepage only this time form the link with the word "widgets." The end result is that context-less weight you're getting from third parties is sent to your sub-pages and then back to your homepage as context-rich weight, which will help significantly in the search engines. So really what you're doing when you link to your homepage with a word other than "Home" or "Index" is you're laundering PageRank. Now not all of the PageRank sent to your sub-pages gets sent back. There is something called the dampening factor which removed some PR from the equation during every "jump," so just like your normal laundry you might find a couple of socks missing after laundering your PageRank. However the benefit still makes it worthwhile if you need to optimize your homepage for a competitive key phrase.
Other Resources
I don't often link to articles written by others as I'd rather link to one written by myself but this article is too useful to pass up.
This paper offers some great examples, and the math right along with them, that illustrate how different linking structures affect PageRank.
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