A “bad neighborhood” refers to the server where your site is hosted. A site hosted on a server that hosts other sites that spam or use black-hat SEO practices can end up penalized by search engines solely because of their proximity to those sites. In other words, be very careful about which web host you choose, what their terms of service are, and how strictly they enforce those terms if you want to avoid being penalized because of what your neighbors are doing. Linking to sites in bad neighborhoods can also have a negative effect on your search rankings.
