An internet directory is a website which enlists other websites or services in various categories and sub categories. Viewers seeking information browse categories and find the required service they are looking for. In a good internet directory there may be several hundreds of categories listing several thousands of websites.
Every internet directory maintain a quality standard. Webmasters willing to enlist their websites in an internet directory submit their website details via submission form. After receiving that information a human editor of the directory site manually review those submissions. If a website is found suitable then it is enlisted otherwise editor rejecting that submission.
Today most of the internet viewers collect their required information through search engines. Search engines like Google, Yahoo, Bing, etc. enlist their search result according to the search key (i.e. search string insert by the user in the search text box) and the qualities of the pages. The difference between a search engine and an internet directory are,
Apart from the general internet directories there are also niche directories which gaining their popularity in the internet today. Niche directories are the directories which enlist websites of a particular topic or region. Telephone directory, car directory, web host directory, regional directory are few examples of niche directory. People seeking information and resources relay on those directory sites to get it.
As I said search engines put great importance to the sites listed in quality internet directories so webmaster submit their websites in internet directories to improve their search engine ranking. Since number of websites is increasing day by day so it becomes very difficult for the human editors to review every websites. To enlist a website in a quality directory like DMOZ webmaster may have to wait ten years or even more. To handle this problem many web directories like Yahoo directory accept paid submission. This method actually filters out many low budget quality websites from being listed, i.e. quality of directory is being compromised against money.