Search Engine Optimisation (SEO) has been divided into two broad schools - White Hat SEO (good or ethical) and Black Hat SEO (bad or gaming the system). In short, exponents of White Hat SEO play by Google's rules (and its always Google's rules!) while Black Hat SEO companies will try to bend or ignore the rules completely.
Examples of the differing approaches are legion but typically a White Hat company will attempt to improve a website's profile by optimising content, slowly and naturally building its link profile, etc. The goal being to increase your ranking without falling foul of any of Google's many rules. The key here is that it takes time.
The difference in approach of a Black Hat agency is often the speed with which they promise results. Its the equivalent of a 'get rich quick' scam. Any company guaranteeing first page results within weeks of working on your behalf is probably breaking at least one (and probably many more) of Google's rules (or 'webmaster guidelines' as they prefer to call them). So this might mean buying links to improve your website's initial profile, copy content from other well ranking sites, setting up loads of spoof websites to try and improve your site's popularity, writing spoof reviews, etc., etc. All of these techniques are attempts to game the system and Google is continually attempting to beat them.
What's the Problem?
We know, we all want page one results, and we all want them like, yesterday. The problem is that Google doesn't like what it calls 'web spam', and that includes websites that attempt to cheat their way to the top. Google wants the search results to be useful to its users, or they will go elsewhere and Google will lose advertising revenue. The last thing Google wants is for a user to click on a search result and end up on a page that is irrelevant or worse.
To beat the web spam, Google continually tweaks its algorithm and changes its rules to catch out the cheats. The Panda and Penguin updates were done specifically to clean up the organic search results. If you fall foul of these rules, the penalty is severe - Google will remove your website from the organic results.
Recovering from a Google penalty can be time consuming and expensive. Some experts have even suggested that it is more effective to abandon such a website and start from scratch on a new domain, with all the problems and delays this entails - not least the return to spending big on AdWords.
So ethical SEO is the process of attempting to improve your website's Google (or Bing, etc) rankings by following the search engine's guidelines (or rules). Its often a slow, painstaking process, but one that will deliver tangible and long term results if done properly. It will also guard against your website being suddenly removed from the search results. For that reason alone, ethical SEO is worth the effort.