You might be thinking, "why would I want to promote someone else's site?"  The understandable fear is that by linking with similar sites, your visitors will click away, leaving to explore the competition.  The truth is, by 'exchanging' visitors, both sites are seen by more people.  Really, that's how the web works best.  
  

"Sites that link together receive more traffic"

  
For example, Site X doesn't like to exchange links with anyone, while site Y exchanges links with other sites.  For the purposes of this example, it is assumed that both sites receive and send the same traffic.  Your mileage will vary! 
 
 

 
 
Reciprocal Links:  By trading links with other sites, you both increase your exposure.  The simplest way to do this is to find other sites with a similar theme, and propose to trade links.  You display a link to their site, and in return they display one to yours.  This strategy is also helpful because some search engines use your site's "popularity" (# of sites linking to yours) to assess your rank.  The more sites linking to you, the higher your rank. 

Let's pretend you run an online music store.  Here are some guidelines to help you find and link up with appropriate sites.  
 
 

  
 
When writing the webmaster about exchanging links, demonstrate some interest and familiarity with their site.  Your proposal will be much better received if it sounds sincere, and reflects some effort.  To find other sites with similar themes, you can use a Search Engine, or use one of the sites below.     

ClickTrade   Clicktrade is the best place to find similar sites, since it contains over 10,000 sites, all categorized by theme.  Another advantage is that many of the sites are listed there because they are looking for reciprocal links.  

Expose   A searchable database of Web sites that accept reciprocal links with sites of similar interest. You can add your site as well. 

Web Side Story is categorized by theme and traffic.

Zebulon's Exchange of Links is another mailing list. 

Web Rings:  A web ring is a group of sites with a common theme, all linked together in a circle.  Because the rings are organized by theme, people surfing the ring are most likely interested in your site.  Signing up is very simple - just fill in a form at WebRing.org