You may call it the index page or table of contents for your site but Sitemaps are probably the most important tool to help search engines discover your internal web pages.
Carrie Hill at SEW shares how you can use a sitemap for SEO – i.e., build strong internal links and also flow pagerank to your most important pages:
A page with links and text is more powerful than just a list of links, and the text can help the users determine the true content on a page that may be optimized for a general term.
Carrie also suggest that you should have less than 100 links on your sitemaps and use do-follow link for the sitemap only on the home page and nofollow it on the interior pages. Here’s why:
So think of the sitemap link on the homepage as a funnel – sending "juice" from your most powerful page into the other pages of your site. If your interior pages are funneling their juice into every other page of the site, it’s hard for them to keep any for themselves – and then rank well. If you "funnel" juice from links, authority, etc into the sitemap from your homepage – and from the sitemap into the rest of the site – and from the rest of the site into every other page, you’ve created a "sieve" not a "funnel."
Think about every link coming "IN" to your page and every link going "OUT" from your page as opportunities to hold or pass on juice. Interior pages receive less juice by the nature of most links going to the homepage, so they need to hang onto it much more than the homepage does – hence the need to keep the sitemap links on interior pages closed down.