A general assumption with SEO is more links = higher rankings.

What I would like to know is does Google know what those links are referring to.

I.e. if somebody gives a product a good review on their personal blog and links the review to another companies website (who are selling the product), would Google take consideration for the review/description link. Essentially would Google know that this link refers to a product. So if somebody is looking to buy a product, Google would know to include this page because the previous link said it sells products rather than just having information on products.

Then to take this further, does Google know if a link is positive or negative. For example, If somebody creates a post saying, do not visit example.com, example.com is bad because of blah blah blah. Would Google know that the link is getting bad feedback and therefore would it have a negative affect on rankings, or would Google go oh its just another link and give it better rankings?