Overoptimizing has something to do with building so many back-links in a short period of time in an attempt to increase your ranking. Ranking is something that has to be done gradually, but if you'are trying to force your way out of the system the likelihood for your site to be penalized up will...
You are completely right. This is really how Google wants webmasters to build their back-links. They want it to be done through quality content that people will be happy to link to.
Conversion rate is the percentage of people who visit your site that buy something. The way it can be increased is trough driving more targeted traffic.