Comment on WordPress SEO Tutorial by SEO Dave.
This way your tags with traffic loose no internal backlinks and you waste no link benefit on tags that aren’t generating traffic, which means the important tags (and other pages on the site) gain more link benefit since less is wasted.
Same argument for categories, not much point having a tag or a category that doesn’t generate traffic OR doesn’t serve a spreading link benefit function: every post needs to be in one category or tag, ideally each category/tag would be limited to only 10 posts (or whatever number you set archives to show, doesn’t have to be 10) so they don’t go over to category page 2, page 3 etc… This maximises link benefit to all deep content assuming you have a sitewide widget of categories/tags.
Category One has a sitewide link and has no more than 10 posts (or the number you have it set to so it doesn’t go to page 2), this means all the posts in Category One are no more than 2 clicks away from home page and since all categories are linked sitewide all content receives a fair share of link benefit.
If you use a popular posts widget those posts will also have sitewide internal links, so will be no more than one link from home.
In practice it tends not to be this perfect setup, but if you keep it in mind you won’t go far wrong. If you want specific posts to gain more internal links so it ranks higher there’s custom menus where you can link to specific URLs to make sure they have more internal links.
This is whitehat SEO PageRank sculpting.