I'm surprised at how long it is taking the SEO community to twig to this - search engineers have been talking about it for years. The key is to work out what the searcher wants. If someone types in 'Hoover' are they after the branded vacuum, the dam or the FBI guru? Hoover is the keyword but it is the searcher's intent which is most important.
Let's say you've a client who sells MP3 players from their website. That's all they do. Are you going to go away, do some research and then conclude that keywords include "ipod", "zen", "mp3", etc. Ah! Perhaps you'll talk about the long tail and claim that the keywords are keyphrases that include "black 80gig ipod with free shipping". That's better but that's not good enough.
The intent phrase there is 'free shipping'. What does that tell you? The searcher is rich enough to go for the 80gig but poor enough to care about the shipping. A student, then? We can also be fairly sure that this searcher is ready to buy. If they're thinking about shipping then they're not researching. It would be best to target a "buy" page to this intent phrase. A buy page is unlikely to have an essay of text on it. Many SEOers who try and persuade their client to shoehorn as much keyword laden text on to their 80gig ipod page as possible.
But what about the 80gig ipod? The MP3 client should have some strong and authoritative ipod pages. In this example an authoritative page is one which offers useful information about ipods and actually gives people a reason to link to it. That's a tough call. Could you write a page about ipods that actually stood out well enough to persuade people to link to it? This is where social media (social search) can factor in as we could button this page to encourage users to tag it in search engine friendly social bookmarking sites.
The authoritative pages are the first stage in the search cycle. They target the researchers. They're there for people talking about ipods online and should begin to enjoy natural forum and blog links. The authoritative pages link to the buy pages. Yeah, it would be worth having a different page for "free shipping" than the normal "shelf page" if you can avoid duplicate content issues. Users intend to avoid body content that they've read already.