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Dumb link text question

I'm confusing myself

     
10:26 pm on Jan 12, 2007 (gmt 0)

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ok, I have a question that is probably obvious and just a dumb question, especially since I've been doing this for a long time! But here it goes:
If I have link text in the body copy of a page, say the phrase BLUE WIDGET CONTAINERS is the underlined link text (and the main phrase I'm optimizing for that same page is BLUE WIDGET CONTAINERS), does a search engine see those linked words on the page and count it toward that page or the page it's actually linking to? I understand that when other sites link to your site, that link text is helpful to your site. However, when you use the text links on your site - does it help your site because those words are physically on your page? Or does it benefit the page it's linking to?

Hopefully I'm making sense. I'm starting to confuse myself.

10:51 pm on Jan 12, 2007 (gmt 0)

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Both.
3:48 pm on Jan 15, 2007 (gmt 0)

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ok, thanks for clarifying. It seems it should work that way, but it started to confuse me.