Directory submissions seem to be one of the main ways of building link popularity used by many SEO companies out there. When you pay for a directory submission service, your SEO company submits your URL to 400 or 500 (sometimes 1000) directories out there on the web. SEO companies claim that directory submissions is one of the fastest ways of improving link popularity.
While directory submissions increase your link popularity, they do not help you with the traffic or your rankings much. Increasing link popularity is totally different from increasing your rankings. There are some websites with only 200 links ranking higher than websites with over 2000 links. The reason of their ranking high is because SEO has now become a game of link quality.
The first reason why directory submissions pass minimal to no link juice is because they contain only links and no content. And for that reason, most of them have another fancy name: link farm. Because of the lack of content, search engines stop favoring web directories and make sure that their outgoing links do not pass a lot of value.
That being said, another reason of their low link value is that everyone is submitting their link to the directories in order to get link juice but no one is passing link juice to them. It is not hard to imagine each category of a directory to have over 200 outbound links. This also goes without saying that directories have a very high percentage of spam.
Directories also do not provide enough traffic to the target websites because no one uses directories as a navigation system. People normally Google up anything they want to find. Even though directories were thought of as a navigation tool, they do not function that way anymore.
However, there are a few high quality directories out there like Yahoo Directory and DMOZ, which can provide you with a lot of link juice. The downside for inclusion into them is the high fee that they charge.
In the end, my advise to you would be to be wary when you pay for a directory submission service as the return that you are getting is quite minimal.