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Each search engine works a little differently but most have some general characteristics in common. Unlike a directory, which you have to manually submit to and rely on a listing made by a human editor to determine your ranking, a search engine uses your entire page, sometimes your entire site, to determine a ranking. Also unlike a directory you don't need to submit to a search engine to be included in them, although submitting may expedite the process, because search engines send out robots (also known as spiders) that crawl the Internet following links from one site to another. So the only thing you actually need to be listed in search engines is a link to your site from a site already in the engines.
In the early days of search engines to get ranked high it was all about what text was on your page, especially text not visible to the average viewer such as meta tags placed in your document's HTML header. Then Sergey Brin and Lawrence Page founded Google and the whole world of search engines changed.
The problem in the past was that you were relying on webmasters to honestly tell you what their site was about, and that of course lead to abuse. It was impractical however to edit every web page manually, Google has billions of pages but the largest directory only has a couple million. The answer was to focus on links. If a website links to another website then the first website must think that the second website is good, ergo the second website gets a bonus.
Link popularity actually works by looking at a few things. First of all not all links are created equal, a link from a page that is ranked higher will be worth more to you than a link from a page that is ranked lower. Additionally the weight of any link is found by dividing the weight of the linking page by the total number of links on that page. So you cannot simply make more links without lessening the value that each link provides.
Link popularity was a good way to rank sites, but it didn't solve the problem of topically categorizing them. The answer was to look at the context of those incoming links, specifically the anchor or link text. If you have a link pointing to your website from another website, and if the text for that links is "Blue Widgets" then Google uses that as a vote for your site to be listed under the words "Blue Widgets." Thus the text associated with links is now vitally important.
The most important thing however is what you do with the weight that your incoming links give you. Since internal site links do count there is a lot you can do with the weight once you get it, and it is the effective use of this weight that really makes a difference.
Page content is still important, you still need keywords in your title and in your body text, and alt attributes for images do help, but without incoming links you will not be ranked highly (and incoming links alone won't get you anywhere). You never want to keyword stuff, that is put in so many keywords the sentence makes no sense grammatically. So as long as your body text is grammatically correct you should be fine no matter how many keywords you put in there. One way to get the maximum amount of keywords possible is to always elaborate on or list exactly what you do and what you offer (never say "and more."). You can also replace pronouns or any meaningless identifiers such as "our products" with their specific names.
Files, directories, and images should be named with keywords and underscores or hyphens, do not use spaces as they present compatibility issues. Every image should have an appropriate ALT attribute and all internal site links should use both your keywords in the anchor text and title attributes.
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