I can't give you definitive answers, so I won't try. A couple of places you can get definitive answers are the blogs at Yoast.com and SearchEngineLand.com.

Natural linking. Casual linking. Semantic liking.

Like, whatever you explicitly want to rank for on Google, don't link to that much at all It seems screwy but Google has really tightened things up.

Think more of the long game. Instead of thinking to link in to a specific keyword, to rank for, write helpful, content rich pieces and link naturally into other rich pieces. Although you will never create this volume of content nor link in that much, internally, Wikipedia is a fine example. Lots of links, to lots of relavent content, all links being natural.

Googles these days sees your entire blog or site as the body of work, based on those sweet internal and external natural links, leading to valuable, content rich pages. Then, here and there, sparingly, try linking in to your preferred key phrase. But know it is more about doing things naturally and casually to nail down that rank, and you will need to be super patient and persistent in creating an authority blog.

Use descriptive keywords in anchor text that give a sense of the topic or keywords the source page is trying to target.

Using 'carpet cleaning [my town]' is not a very good approach for anchor text. Although you may want to rank for that, using "Tarzan English" in an article is not only spammy looking, it makes you look illiterate to visitors to the page. Use real phrases like "carpet cleaning in Dallas, TX" or "Dallas carpet cleaning services". Google is "smart" enough to know that all three mean the same thing and you do not have to exact match the Tarzan phrase.

As far as linking out goes, whether you choose to believe them or not, Google has said at least a half dozen times that linking out to other websites does not help your website rank any better. It COULD hurt you if you are linking to bad neighborhoods, but it won't help you. If it helps your readers, however, you should do it because it makes your site better and better sites get more traffic, better user engagement, more links and ultimately better rankings.

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Dave, I just read an article (can't seem to find the link - will add it if I find it) that said that using "Tarzan language" can be seen as a negative. According to the article, search algorithms are learning that too many instances of things like "carpet cleaning Timbuktu" are used by people looking to game the search engines.

It makes sense to me. I might type "carpet cleaning Timbuktu" into Google or Bing if I was looking for a carpet cleaner, but I wouldn't expect to see it as an internal link in a blog aimed at humans.

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Sounds a lot more natural, doesn't it?