As I learn more and more about SEO I find myself reading blogs and articles and then having questions after I am done. I recently read that as part of link building efforts we want the links coming into our site from a multitude of sources. But the same piece also talked about Anchor Text diversity, so that as many of the relevant key phrases for your site are represented in the anchor text. Can anyone offer up some clarity on this?

I think you are making more complicated. If you want to rank high for a certain keyword you have to have that keyword in the anchor text of many links. This goes for every page and every search term. One page can rank high for multiple search phrases if it has anchor text links with high keyword phrases in each one.

Apart from getting "anchor texts" backlinks to your site..........you can also improve your overall site internal linking structure using anchor text keywords. I mean if you have 5 pages in your website.....just link each page from each other using the corresponding anchor text keyword which represents that page..

I once coined the term "keyphrase dynamicability" to describe exactly what you are suggesting. Cast the widest net within your means to capture as much targeted traffic as possible to your web pages.

It is important not to constrict your keyphrase targets to just a couple of specific terms. Start with a handful of keyphrases then introduce all the variations (pluralization, altering suffixes and prefixes, abbreviations etc.) you can think of, even if you have to invent some (morphology). Try using synonymous keyphrases too.

A good example would be, let's say, SEO. Here's a small portion of keyphrases that would be a good start to target: SEO, search engine optimization, search engine optimisation, search engine optimizers, SEOs, web site promotion, Internet marketing, SEM, search engine marketing, web page optimization, website optimizer, searchengine marketing, searchengine optimizations, etc. etc.

Stephen is correct in stating that a well-structured internal linking system is generally much more powerful, and controllable, than deploying an inbound link building strategy. Remember that Google compares web pages to webpages and generates PR regardless of where the link comes from (as long it is originated from another webpage).

The guidelines are really great because Google is looking for the websites which are having natural link building programs and systems in place and as you can guess, repeatedly using the same anchors just over and over again would create an artificial way of site maintenance and functioning over the net.