It's that simple!
Choose a word or phrase in your text that is descriptive of what the link will take you to.
When your link text is selected, click the Link button on the toolbar.
The following dialogue will appear offering 3 things that can be linked to:
Fig1. Add link dialogue
Pages that you have been working on will be displayed. Click on one to create a link to it then click the OK button at the bottom.
If the page you want is not displayed, then select 'Site map' and you will see a tree of all the pages in your site. Again, just select the one that you want to link to and then OK.
If the page you want hasn't been created yet then click the 'Create new page' button. In the dialogue that opens, type in a title for the new page.
Fig 2. Create new page from link
For the Page Type, most times you will want the default of 'Web Page' although at some point you should explore the other Page Type options..
Now choose where in the Site's hierarchy the page will sit. Choose 'Top level' if the page is the start of a major theme on the site. If the page is subordinate to the page that you are linking from then choose to 'Put the page under ...' In the image above this option happens to be 'Cave development' but this will be the name of the page where you are creating the link. You can also click on a page name in the site map to place the new page as subordinate to this in the structure.
Don't worry too much about this at the moment if you are not sure, as the structure can be tweaked later on.
Now click the 'Create page' button and then OK.
In Fig. 1, the left side of the screen offers two options. When the dialogue opens, it defaults to 'Existing page'. Change this to 'Web address' and then type or paste in the address of the website that you want to link to.
When creating a link, the dialogue always has an option to 'Open in new window'. When should I select this?
When you are linking to existing or new pages in your site then normally you do not want to select this. When you force users to open multiple windows on their screen there is a possibility of confusion. Users should use the navigation provided by you and Google Sites to explore the Site.
If you are linking to external websites then you do want to select this most of the time. This keeps a separation between your pages and external resources.
Make sure that your pages have human readable descriptive names. For example, this page is called 'Add link' rather than, say, 'Page 5' or 'adlnk'.
The name of the linked to page will be inserted where the cursor is and will be linked to the page you want.
This saves typing text and then selecting it but make sure that the names of your pages make sense!
This can be handy when you are creating a list of links to other pages in your site.
When you create a link on your site, always check that it works! You can do this when you have finished editing your page. Systematically go through all the links on the page. When you have linked to other pages in your site, check that the navigation from here allows an easy return or move to other pages.