3) I check backlinks for oldsite1 and oldsite2 and find they still has 20 backlinks each. I check each of those 40 sites and fire off an email where I point out the page that has the broken link and ask for a link to my site while they're fixing it.
Searching the directory to find oldsite1 and oldsite2 was to find sites that have gone offline. Ignore the fact that you could contact the directory owner about their broken links, I just use the directory as a seed.
Then I check who links to oldsite1. Even though it's offline, you can still see who links to it using pretty much any backlink checker. Now you have a much larger list of sites that you *know* have broken links, and a full list of the exact pages that have the broken link. Maybe you've now got 20 websites to contact instead of just one.
Is that clearer?
Jay7, I personally wouldn't push it past there, I'd go looking for current, active sites with broken links. But you can also do a whois and see who runs the nameservers and hosting, sometimes there's clues there. And you can do a search in bing on the IP address like this: IP:#*$!.#*$!.#*$!.#*$! (where #*$! is the IP of the site). that'll show sites that are on the same IP and also sometimes yeilds clues. For the hard to find, sometimes I'll go up and down an IP address as well :).