A LinkFarm is a collection of intentionally-interlinked pages, designed to fool search engines (such as google) that use PageRank or a similar algorithm, into believing that the pages are more important than they really are. Google is known to employ a link farm detection algorithm, which penalizes those pages determined to be a link farm.
Note that "link farm" refers to pages containing no content (or irrelevant content) whose sole purpose is to boost some site's PageRank. Heavily interlinked sites like blogs and wikis (GoogleLovesWiki) are generally not considered to be link farms as the content and links are assumed to be genuine. However, it may not always be easy for an automated algorithm to distinguish the two.