I took two snippets from the Raven Articles on SEO Navigation and added a lot of my own comments. The comments seem to have lost their color on migration from G Docs. I'll see what I can do to differentiate them.
Linking (and how to go about linking) is probably one of the largest aspects of website navigation. There are several different ways that linking can help your navigation, and some are better than others. The types of linking include:
Internal linking. This is essentially linking to another page of your website on one of your other webpages. This is probably the most important type of link when it comes to navigation. It helps people find related articles and topics without have to browse through any archives which means hyper linking keywords like "blog length" are considered internal linking.
Horizontal linking. This happens when you link to related products. The best example is probably YouTube where you see related videos on the right side of the page. This will usually only benefit huge websites such as YouTube, but it’s something to consider if you’re a site that offers many different products or if you are on a blog. Some also consider a “related articles” plugin to be horizontal linking which means blogs would benefit from horizontal linking.
When deciding how to break up your website into different categories, you will want to follow five steps:
Determine the keywords or phrases your audience might use when searching for something on your website or when searching for your website in general.
Determine what pages on your website are getting the most traffic.
Group similar pages together. You don’t want to segment them by how much traffic they get, but do keep this in mind because putting high traffic pages at the top is often a good idea. It’s also OK to put one page into two different categories if appropriate.In my opinion it is not okay to put multiple links to the same page in the navigation. The only situation would be if you were catering to an audience that was highly focused on following a specific pattern and to develop a phase out plan.
Use tools like the Google AdWords Keyword Tool to help determine the popularity of your keywords as you create names for each of the categories. Do this based upon each sector of your industry and what you want to be found for when your audience searches.
Put the categories onto your website. If your categories are along the top, you should probably stop at about five to seven, but down the side you can have as many as will fit (usually no more than 15). You don't want the overflow to occur on your homepage or landing pages because they will be the most visited initial page. You want to keep your bounce rate low and your pages per visit high which means you need to think above the fold.