I suppose it boils down to this: I don't like working with complete strangers.
There is value in working with people you know or have someone in common with. When you advertise, the people who find your business are often looking for the cheapest price and want a quote. When you are referred by a friend, the people are more likely looking for someone they can trust to do good quality work by a given deadline. Price is not usually their first concern.
Some of the least satisfying projects I have worked on are with clients that sent me an email because they found my website through a web search. The communication was very cold and overly formal and when I asked questions about their expectations for the work their replies made me feel like I was bothering them. I should know what they wanted. Inevitably, the client complained at the end that the project was not completed the way that they wanted. Neither of us was satisfied and we probably won't work together again.
Working with a client that you were referred to by someone they trust sets the stage for a much better working relationship. You basically start with one 'get out of jail free' card. If there is a misunderstanding early on, you often get the benefit of the doubt because you were spoken of so highly when they asked about you. If you did a good job before, surely the mistake couldn't have completely been your fault.
When I'm looking to hire a freelancer to work with on a project, referrals are vital. You can see someone's background and experience from their CV but you can't learn about their work ethic or emotional stability. For that you need to talk to someone who knows them or has worked with them before so a recommendation from someone I trust goes a long way.
Whether I'm being hired to work for a client or hiring someone to work with me, relationships are a key element for potential success. They are not a guarantee of a successful project but they reduce the chance of a "bad marriage". Networking is very important to the health and growth of my business. Countless opportunities have from friends and professional acquaintances suggesting me for various opportunities and I do my best to reciprocate whenever I can. It is said that WOM (word of mouth) advertising is the most effective form of marketing for a business and, so far, that has proven to be the case for me.