What is a bad neighborhood?
A bad neighborhood are those web sites that use unethical methods to get high search placement in the SERP (Search Engine Result Page) and these sites are usually banned by the search engines. You should not link to a web site if that particular web site uses unethical method to get high search placement on SERP. If you link to a site that is banned by the search engines for spamming, then you're inviting the risk of getting banned for linking to a bad neighborhood. As soon as the search engine founds out that a particular web site uses unethical methods they will banned it and the sites that links to that particular web site may also be penalized by lowering their rankings or even banned. You can use this free online tool in locating potential problems with your linking strategies text link checker tool.
"Unethical SEO" are those things that are not accepted by the search engine and those that they accepts are called "Ethical SEO". Those are the standards set by the search engines. Following those standards will help search engines index and rank your site. Not following these standards will lead to a site being removed entirely from search engine index or much worst penalized. Since Google is one of the most dominated search engines you can learn more of their webmaster guidelines here.
How Google measures whether a site should be banned or not is a matter of controversy that Google itself only knows. It changes from time to time. Today the method that Google uses may be o.k., but in the next update it may be considered unethical.
If you do have a questions or suggestions feel free to leave a comment. Comments are greatly appreciated. Hope you've learned something from this post.