Anchor text is the visible characters and words that hyperlinks display when linking to another document or location on the web. It usually appears as blue underlined text, but you change your website’s link colors and styles through your HTML or CSS.
Anchor text can provide both search engines and users relevant contextual information about the content of the link’s destination.
In the above example of the link code ‘Tiny dancing horse’ is the anchor text for the link.
Search engines use external anchor text (text other pages use to link to your site) as a reflection of how other people view your page – and by extension, what your pages may be about. While website owners typically can’t control how other sites link to theirs, “you can make sure that anchor text you use within your own site is useful, descriptive, and relevant.” (Source: Google)
If many sites think that a particular page is relevant for a given set of terms, that page can manage to rank well even if the terms don’t appear in the text itself.