in the SEW article he said about internal links, that "The most effective internal links are blended seamlessly within article, are not navigational, and are not clustered at the end of the content. "
What they mean by "Navigational" is links that are on the site's navigation menu.
Having links appear on the navigation menu is a way of telling Google what the major sections of the website are and really there should only be a small number of links on the navigation menu.
Some template sites put pretty much every page of the site on the navigation menu and that is not desirable. The site should have a hierarchy - essentially clustered into sections - with not all pages being treated the same. The navigation menus should really just have links to the sections - and not links to the pages within the sections.
Clustering the links at the end of the content can make the links "navigational" as well. Also, content and links higher up on the page are given more weight.
It is worth keeping in mind that Google only "reads" the first incidence of a link to another page (or another site) that appears on a site's page and that would be the link that is highest in the code (not necessarily the visible page).
This includes links that are on the navigation menu (which usually have the least effective link text) which is another reason to limit the number of your navigation links. If you have links on the navigation menu and other links to the same destination within the content of the page - only one will count and it may not be that carefully crafted keyword rich link that you hoped would improve ranking.
All of the above applies for all links - internal and external. Putting external links on the navigation menus creates problems on a different scale and should be avoided at all costs if the sites are about similar subjects.
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