Directories are the "brand new site" best friend.
Since every new domain gets put in the Google "Trust Box", since they favor links from trusted sites. This is a part of the "Trust Rank" equation within the algorithm. Directories play a very important roll in getting good quality inbound links that help your site to get out. As they pass Page Rank and reputation with Google, your site will greatly benefit from its inclusion in these directories, especially in the launching phase of its life cycle. So, finding solid directories to get your site listed is the key.

The viable alternative to link buying... and safer
Directories provide one-way inbound links to your site, and drive traffic to your site through direct referrals. By doing this, they boost your link popularity and ultimately improve your search rankings. All this done naturally, and cost free in many cases

Paid vs. free: the differences and the similarities.
Paid directories quickly list your site, were free ones may take several weeks or even months to review it. On the other hand, some paid directories charge expensive listing fees for the link they provide, and that is not cost effective. If you work on a limited budget for your site, you may want to submit to a handful of paid directories but a few hundred of free ones. Of these last ones, prioritize "one-ways" preferably. Whatever directories you submit to, paid or free or a combination of both types, the quality of the directory itself should be the biggest consideration in your decision.

The directory pages that counts are were the link is.
When doing a directory submission, not only look at the Page Rank of the homepage, but also of the sub page, where your link will be. While it may seem like a benefit to have your site listed on a PR7 directory, this is less effective when you realize that the internal page where your link is actually only a PR3, when you expected more.

Page rank is not the only factor of directory quality.
A low PR directory is not necessarily a bad one. New directories fall in this category. These directories do review and list sites quicker. Also, when they become more popular, so will your listing. Again, base your decision based on the quality of the directory. And keep in mind whether or not the directory is search engine friendly. When checking the structure of the link to your site, make sure it is not dynamic some paid directories charge expensive listing fees for the link they provide, and that is not cost effective. If you work on a limited budget for your site, you may want to submit to a handful of paid directories but a few hundred of free ones. Of these last ones, prioritize "one-ways" preferably. Whatever directories you submit to, paid or free or a combination of both types, the quality of the directory itself should be the biggest consideration in your decision

Directories links shouldn't be more than 10%.
You shouldn't have more than this percentage in your overall inbound links count. Don't rely on directories alone as your link source. Diversify them for your benefit.
Please refer to Search Engine Optimization (SEO) Basics - Part 2 for more sources.