But first, let's talk about why people buy paid links. Links are really important for ranking higher in the search engines. Because of this, some website started selling links because people would buy them to increase their search engine rankings.
Google's Paid Links Policy (from http://www.google.com/support/webmasters/bin/answer.py?hl=en&answer=66736)
"Google and most other search engines use links to determine reputation. A site's ranking in Google search results is partly based on analysis of those sites that link to it. Link-based analysis is an extremely useful way of measuring a site's value, and has greatly improved the quality of web search. Both the quantity and, more importantly, the quality of links count towards this rating."
"However, some SEOs and webmasters engage in the practice of buying and selling links that pass PageRank, disregarding the quality of the links, the sources, and the long-term impact it will have on their sites. Buying or selling links that pass PageRank is in violation of Google's webmaster guidelines and can negatively impact a site's ranking in search results."
More relevant discussions I found:
Do you think you are smarter than Google? If so, go ahead and buy all the paid links you want. But I will bet $1 every time that Google is smarter than you are. And if you buy enough paid links to have a big effect on your marketing, then Google will find out and you will be penalized.