The key thing to understand about how search engines work is that they index pages, not websites. In that regard, every page rises or falls on its own merits. On-page search engine optimization is an important factor for every single page on your website. So too is off-page optimization or link building.
That means that any inbound links you have pointing to a page are going to be considered by the search engine algorithm for the purposes of PageRank and ranking. While inbound links from other websites will carry more overall weight, if they are good links, you can’t discount internal links. Those will often be your first inbound links to every page. But the most important inbound link to your website (indeed, to every page on your site) is that first inbound link from elsewhere.
No web page at all will get crawled and indexed without at least one inbound link. If your site is up and ready and has a great internal link structure but no inbound links from anywhere else then you all you have is a great site in a vacuum. It won’t get crawled. You need at least one inbound link from somewhere to any page on your site. Then, that page will get crawled and every page on your site linked to from that page will get crawled as well as any pages linked to from those pages.
Once you get that first page indexed then any inbound links from within your site will get crawled and the other pages indexed. That doesn’t mean you should build one inbound link from somewhere else then stop. But it does illustrate how critical that first inbound link is to your website.
After that first link, your internal site navigation links are pretty much like any other inbound link. They’ll be judged on anchor text, link age, domain age, page age, relevancy, and all the other factors that every other inbound link is judged by. Do they pass PageRank? Yes. Do affect PageRank? Yes. But if you’re sitting at PR 0, how’s that going to help you?
When it comes to link building, you need to think long term. Build a diverse link portfolio, but don’t count out your own website.