What is link exchange ?

what is a link exchange system an dhow does it work. The probable question that comes up is, what's the diff between a sold link and a text ad? The main difference is probably intent. If it's sold for the purpose of driving traffic to the advertiser's site then it's an ad. If it's sold for the purpose of increasing the advertiser's PageRank then it's a paid link.

Probably by how it's marketed. If it's marketed as a paragraph ad, with the selling feature being how much traffic the publisher's site gets, and no mention is made of PR (either the publisher's or the advertiser's), then it seems like an ad. If it's marketed as a "link", with the selling feature being how much PR the publisher's site has, then it seems like a paid link.

Should you buy links to your site? No. Your site should be good enough that other webmasters will link to it without your paying for it. If it's not good enough, then you need to spend time improving your site rather than trying to trick your way to the top.

Should you sell links from your site? I advise against it. Besides the fact that you risk a search engine penalty, it's just kind of cheap. Again, you can certainly sell full-blown text ads which contain a link. I do that all the time.
Incidentally, the text ads that are displayed in Google Adwords/Adsense program don't count towards backlinks, because the ads are delivered with JavaScript and the search engines don't index the JavaScript output on a page.