There's a fine line between good and evil; between parter sites and webrings; between link directories and link farms; between white hat SEO and black hat SEO.
On-site SEO is more ethically justifiable than off-site, because on-site is more about sympathetic accessibility than ruthless competitivity. Nevertheless, when search engines avoid onsite keyword stuffing by rating sites based on inlink juice (weighted voting, called PageRank by Google) rather than by onsite analysis alone... the popular, scientific way to boost search engine rankings is via off-site SEO (link building).
As the superpower of search engines, Google has officially advised us about how we should conduct an off-site SEO (link building) campaign. Until October 2008, Google said "submit your site to relevant directories such as the Open Directory Project and Yahoo". ODP (DMOZ) and Yahoo Directory are both general link directories, with deep structures of categorisation. Most link directories are the same but smaller.
Since October 2008, Google seem to have acknowledged the grey-hat implications of their directory submissions advice, and have amended their Webmaster Guidelines to say nothing about directory submissions (neither positive nor negative).
Meanwhile, Google says "webmasters can improve the rank of their sites by increasing the number of high-quality sites that link to their pages". Unless you want to send unmitigated spam (announcements or begging letters) to non-directory webmasters, you might prefer to spend some time submitting to directories in hope of securing the inlinks required to boost your rankings; and if you have the expertise to do so, refer to the quality guidelines to determine which directories are most likely to be deemed "high-quality".
Many free link directories offer extra-feature deals for payment, or in exchange for you linking back to them from your site as part of a reciprocal link exchanging scheme. Google warns against partaking in such schemes, and Google actively detects and penalises the rankings of participating websites. Google advises webmasters to stay clear of "bad neighbourhoods" in general, to avoid going down with a sinking ship.
With this in mind, the following steps serve as a guide on how best to conduct an efficient and safe offsite SEO campaign by submitting to free link directories.
The first thing to do in preparation of a large-scale directory submissions campaign, in order to save time later, is to prepare a long description of your website. It should contain all of your main keywords, within well-written sentences, from an objective, non-advert-style perspective. It should be as long as you can make it. If your site is really interesting or useful, there should be lots for you to talk about.
Set up a spreadsheet. The first row is for titles of each piece of information you are asked to submit. Each of the following rows should be dedicated to a particular directory, containing the actual information that you submit. Don't forget to update the spreadsheet each time before you click the "submit" button, just incase the directory goes offline or returns an error. If kept up-to-date, this spreadsheet can be very useful for reviewing the success of a large scale directory submissions campaign. For maximum quality of records, save screenshots of each submission page as it looks just before you press the "submit" button, and refer to it from the relevant row in your spreadsheet database.
Work your way through the lists of directories below, concentrating on directories which have high-PR homepages and a good flow of PR through to deep, internal pages. Don't waste your time with directories that clearly use "nofollow" (search for "nofollow" in the source code of any page containing basic free listings with external links, or check properties of a particular link).
Give extra attention to directories that have been around for a long time, because they are more likely than most to still be here this time next year. The directory lists below can be ordered in descending chronological order, in which case start from the back.
Use the long description from Step 1 to make unique descriptions of your site for each directory that you submit to. Search engines don't like repeat content, so if you submit the same descriptions to several different directories, search engines may refuse to index the relevant directory listings pages, and any links from these pages will carry less value.
Before attempting to submit to each directory, don't forget to search for your website to see if it's already listed (submitting a site that's already listed can result in that site being removed from the directory, according to the popular set of rules).