Anchor text is the visible, clickable words of a link. Search engines read it as a description of the page being linked to, which makes it one of the clearest signals of what a page is about. Descriptive anchor text helps. Identical, keyword-stuffed anchor text across many links is one of the recognised marks of bought links.
What it does
Google's own guidance says link text tells users and Google something about the page being linked to, and that with appropriate anchor text both can understand what a linked page contains before visiting it. A page linked twenty times with the words fireworks display insurance is understood to be about fireworks display insurance, whether or not the page says so loudly itself.
That works for your own internal links, where you choose the wording, and for links from other sites, where you usually do not.
What natural anchor text looks like
Messy. When people link to a page of their own accord they use the brand name, the bare URL, a phrase from the page, the word here, or a sentence fragment that happened to be where they put the link. A natural link profile has a lot of brand and URL anchors and a scattering of descriptive ones.
A profile in which most links say exactly the same commercial phrase does not happen by accident. It is what a link-buying campaign looks like, and Google's systems have been built to recognise it since 2012.
How to use it well
On your own site, describe the destination in a few words that a reader would want to click. Vary the wording across links to the same page. Put links in sentences, not in lists of keywords.
When you have any say over how another site links to you, ask for the brand name or a plain description rather than a target keyword. The relevance of the linking page matters more than the wording of the link.
Where it shows up in the tracker
The backlink report records the anchor text of every link found pointing at your site. Read it as a whole. If a stranger could guess your target keywords from your anchor list, the profile is over-optimised, and if you did not build those links, someone else may have.
Sources
Where this shows up in the tracker
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Related terms
Internal linking
Internal linking is linking from one page on your website to another. It is how Google discovers most of your pages, how it works out which ones you consider important, and how it learns what each page is about from the words used to link to it. It is also the one ranking lever that costs nothing and that you control completely.
Backlink
A backlink is a link from someone else's website to a page on yours. Search engines treat it as a vote: the more trusted and relevant the site casting it, the more it counts. Links are still among the strongest ranking signals Google has, which is exactly why buying them is against Google's rules and why earning them is slow.
Link spam
Link spam is Google's term for links created primarily to manipulate search rankings. Its spam policies name buying or selling links for ranking purposes, excessive link exchanges, automated link building, forum and comment links stuffed with keywords, and paid placements that do not block ranking credit. The consequence is usually that the links stop counting; in serious cases it is a manual action against the site that acquired them.
Toxic backlinks
Toxic backlinks, spammy backlinks and high spam-score links are all names for links that an SEO tool has flagged as coming from low-quality or manipulative sites. The score is the tool's estimate, not Google's judgement. Google says it ignores most such links on its own, so a red number in a report is usually information, not an emergency.