Internal linking is very important to get right, because it could make the difference of you being a PR0 or a PR2-5 or higher. Links from your site will pass link juice to the targeted page, just the same as a link from any other site, and the best part of a link from your page is you control where it goes and that it is dofollow.The biggest problem with links from other sites to yours is, they can be controlled. Controlled by pointing them where they want, making them nofollow instead of do follow, or just removing them all together. If they make them nofollow, your only benefit from the link is potential traffic, and if they delete the link, well then their is no benefit. A nofollow link with pass no link juice to your site for the purpose of pagerank.
Internal links allow you to direct your readers to other areas of your site which will increase your page views, and will make Google happy as well. Google rewards sites that are user friendly. If a person does a search on Google for SEO and finds a blog about SEO and visits the blog. If the blog has a good internal linking structure and good content, than the person is more likely to spend more time on your site and will be happy with the search result that Google gave them, and is more likely to use Google again.
Let me finish this post by explaining a little more about internal linking and why it will help your PR. Every page on your website passes X amount of link juice to pages it links to. So if you have say 50 dofollow external links on a certain page, than that page is leaking a lot of link juice to those 50 sites you are linking to. If you have say 3 internal links on a page, than that page is passing link juice to those 3 pages. The more pages you have passing link juice to any given page, the better chance that page will get a higher PR. So be sure to have a great internal linking strategy. Lastly do get me wrong, it is ok to dofollow links to other sites, but just keep it to a minimum.