Link farm, as if it sounded, so contagious where all 'criminal' activities gathered at. Indeed, link farm is something that has been offending the algorithm of search engines, and it's as though a criminal for search engines. Eventually, get blacklisted by search engines, this is the consequence.

However, some might say, web directories are containing thousands of links, or even millions, in essence, they are so-called 'link farm', but, why still they are not considered as a link farm but a web directory which is legally accepted by the search engines? Somehow, they could still enjoy the benefits of being higher rank page yet not being banned by search engines, like those huge Open Directory Projects.

There are reasons why link farm are being blacklisted or offending the algorithms of search engines, while link directory are still able to stood still legally on the higher rank page. See the difference and you will get the reason why. =)
Difference between Link Farms and Web Directories
There are a few big different features between link farms and web directories that might split both of them into worst and best. Link farm is those directories that are not categorized, and displayed in a haphazard way. And, link farms are designed for the sole purpose of manipulating search results, with no benefit for both users and owner.

However, web directories are those directories that have categories of links. i.e. If your sites are about internet marketing consultancy, it would rather categorized your site in internet>marketing>consultant. While, links farm are doesn't have these features. And, make sense link farms are not providing users useful links according to what they are searching for. So, they are just like a spammer, spamming links, while directories seemingly the same, but they do provide users with useful links according to their searches.

As what I've known, there is still a difference between link farm and web directory, that is link farm is "free for all", in which they accept any suggestions that you pay. i.e. If you suggest the links which is "friendly-related" then it is categorized as what you suggest.

But in a web directory will have an independent review. What I mean is that your site will undergo categorization by the editor of the web directories, and you can not suggest even you have a better words that suit more about your link. And, this category will be editorial discretion, not under webmaster control.

The pros (web directories) and cons (link farm)

This will relate to backlinks. Web directories which categorize your site to certain category, then the relevancy may help you in getting quality backlinks, whereas link farm do not. Link farms have no categories, and might give you bad backlinks. Well, before submitting links to directories, you should consider of quality of the backlinks. So, don’t ever choose those directories which don’t have categories.