This is one question many many affiliates are still asking & the reason why so many of them are asking the same question is because they are getting so many different answers from all over the web.
What Is Direct Linking?
It is simply placing your associate link in your pay per click ad & linking direct to the landing page of the merchant. In 2003, it was commonly known as Google Cash.
Does It Work?
It those days, some people were running multiple direct linking campaigns & making a full time income simply by doing that. As Google AdWords got wiser, they disallowed having the same display URL for the same keyword so that improved the quality of ads & kicked out many advertisers.
Direct linking is still being used now, however, it is more like a testing process rather than a business. When you want to test if an affiliate offer will convert, this is the fastest way.
The disadvantage would would be you need to bid higher because you might not be the only person doing this. Another thing is, it usually does not last long before you get hit by the infamous Google Slap. Now you know what I mean when I say that this is for testing affiliate offers & not the way to build a business.
You can enter your affiliate link into the free Google keyword tool, which ever keywords show up first, you use them for direct linking & this will typically get you a decent quality score. Once again, this will not last long, it is only good enough if you are doing some testing.
Buy a domain name then use an iframe. In this way, your display URL will be your own domain & when someone clicks on your link, they will see the affiliate landing page. This works fine, however, this may not be a long term solution.
Use direct linking only for testing, once you are done, create relevant landing pages to help improve your quality score & your conversion rates.