Links are references of directories in the Drive. That allows to share content from one to another user. Links can be created only in the Drive, not in external mounts - however, you can create links of mounts and their sub-folders in the Drive or even other links.
A user with writing permissions can create a new link to another resource in the current directory. To create a new link, click the three-dots menu and select Create Link. The following dialog requires you to select the Target of the link (1) - that is, what should the new link point to. The Name of the link (2) is optionally set to a custom name.
Links can easily be distinguished from folders by their link icon.
Note: Copying a folder that contains links created by a different user will result in the creation of a link to the original link. This way, no permission given by the original link creator will be overridden.
Users with writing permissions in a directory can create new links to directories they have at least reading permissions to. The creator of a link can change the permission to resources in that link. However, users can never gain higher permissions in a linked folder than what the link creator or user have themselves or is assigned to users.
Example: