Keyword Density refers to how often a particular word appears in comparison to the total number of words on a page. The most common method of SEO work is to increase the density of desired terms, making them more visible in a web page so that search engines will rank that particular page higher when those keywords are searched.
Keyword density is essentially calculated by dividing the number of times a particular word of phrase appears by the total number of words on a given page. For example, the word “keyword” appears on this page 16 times, while the total number of words on this page is roughly 550. Taking those two numbers together and dividing them, it can be said that the word “keyword” is appearing at a density of 3%. The term “SEO” has only appeared 3 times, and therefore has the much lower word density of 0.6%. The desired keyword density can usually be anywhere between 5 and 15 percent.
The more a keyword appears on a particular page, the more Google and other search engines will think that this page is related to that particular search.
For example, a website about engine repairs and maintenance will naturally have the term “engine” and phrases like “car engines,” “engine repair,” and “engine maintenance” appear quite regularly on its pages. Since those keywords would naturally be relatively dense in the text on those pages, search engines crawling your page would see that your page is related to automobile engines, and would therefore rank you higher in results pages someone is given who search for those terms.
This can be taken even further. Say that the above site has sections dedicated to cars, trucks, SUVs, and boats. Pages in the section about trucks would have keyword phrases like “truck engines” or “truck engine maintenance” frequently, while the section about boats would have similar phrases catered toward its subject matter. Therefore, those pages would ultimately rank even higher in more specific searches related to their content like “truck engine trouble.”
Now if the site were focused solely on engines produced by a particular company (like, say, Nissan) and that company's name appeared as a keyword frequently on those pages, then searches like “nissan engine maintenance tips” would likely list that website fairly high, as the website would have a high keyword density of most of those terms.
Having a high keyword density really works to raise your search engine rank if you are focusing on more than one word or phrase, and that those words and phrases are related to each other.
It should be noted here that overly using keywords or using them in a way that does not naturally fit into the text will actually have an adverse effect on your page rank. In the quest to make their search engines even more useful to the people of the Internet, companies like Google have continued to make their engines ever more intelligent, and anyone obviously 'spamming' or overusing keywords will not enjoy the benefits of a higher page rank.
Having a high keyword density is an important part of any SEO strategy, as the effective and prominent use of certain words can have a significant effect on where your web page and website appear in search results.