I've seen many people refer to linking to pages on SO and even other sites as being bad and saying things like "I hope they don't mind". Why is linking a bad thing? I did just read all about Google Penalties but although interesting it didn't really seem to answer why linking is a "bad thing".
So is linking "bad", and if so why?, or have I heard wrong?
Linking is not a bad thing as long as you actually provide some context to your answer. If all you are going to do is post a link in your answer, you aren't really answering, you are just providing a detour for the user. At the very least you could explain where the link goes and what it is going to show the user (maybe even quote some of important stuff in the answer so that the OP doesn't have to click the link to possibly answer their question).
To answer your revised question, most people who say that linking is bad on the web have absolutely no clue how the web works. The only thing bad about linking is the fact that you have no guarantee that the thing you are linking to will be open tomorrow or the next day or 7 years down the road. That's the only problem. There is a reason this is called a web and it is because everything is supposed to be interconnected. If it wasn't you would never make it past your browser's home page half the time.
A related (yet not really) "bad thing" was the use of "hotlinking" images, meaning you would put the image tag in your own code and the link source was pointing back to the other domain. This would cause the browser to download it from that source, meaning it was taxing the resources on the originator's website when people were visiting your page.
Links in general:
One problem with links is that they can die/expire, the pages on the target site get reorganised or deleted, and the link is no longer valid.
One other thing to consider is copyright, if you copy & paste content from another site, you may violate the rights of the original owners. From that point of view, a link is better, because it clearly indicates the original ownership (provided that the site you link to is the original owner, and did not copy & paste..)
Links on SO:
As TheTXI points out, posting only a link as an answer requires the person reading the answer to perform an additional action (click on the link) in order to see your answer.
That is why I try to do both: Put a link to my source and copy the most important parts from the target site or at least a small summary into my answer.
I also follow that approach for links to other peoples answers on SO (see example above), because I consider it polite to attribute ownership where it's due.
If all you do is post a link, then you aren't really answering the question very well.
Actually including content along with links is the preferred way to answer a question.
The problem isn't linking per se, it's the transient nature of the web. Those linked-to pages may not be there in a week, or a month, or years from now when someone has the same problem again. That's why the best course of action is to provide a link, but, whenever possible, include the specifically relevant material from the linked page in your answer in order to preserve it.
If the link is helpful or on point, why would that be a problem? The implied answer to the question is "I found your solution here." Why waste time and risk the ethical violation involved in copying over anything other than a short blurb? I think the link is fair to the content creator since he or she gets blog hits (or whatever) and good for the question asker if the link answers the question. It's not great for SO because the content is elsewhere and subject to change, but that's a issue any content aggregator has to deal with.
The only thing that comes to mind that could be bad about posting a link on a high-traffic site like SO is the ensuing stream of visitors causing traffic overload, congestion and traffic bills on the linked site's end (that may not be equipped to deal with those kinds of traffic at all).
However, different from a link posted on, say, Slashdot, the effect is minuscule on SO. While SO itself has huge amounts of traffic, a single question rarely gets more than a few hundred views. Only a percentage of those people then goes on to follow the link. The amount of traffic resulting from that should be handleable by even the tiniest of web servers.