At a Glance
The main method for doing this is to automatically turn any word in what is called "Camel Caps"--or mixed case--into a wiki link. For example, if one entered the word "WikidPad." it would become a link; Ctrl-click on it, and a new entry called "WikidPad" would appear for editing. It is also possible to use a 'normal' word as a link by enclosing in [square brackets].
The potentiallly confusing maze of links is kept under control by a tree view of the current document, showing all links from a page. The problem with this, though, is that if Page A links to page B and page B links to Page A, the tree view will expand infinitely. This limits its usefulness as a tool for organizing information hierarchically.
Since the help system is presented as a WikidPad document, this limitation quickly becomes apparent. It can be difficult to navigate the help, and there is no real tutorial or step-by-step process to guide new users. There are many interesting features, such as templates (which allow a new page to be created with predefined text), but it is not always clear how they can be used, and they are sometimes less useful than they could be--for example, all pages which use a given template must be children of that template.
WikidPad has some other nice touches--there is an inline Python interpreter (turned off by default for security reasons). You can add any of a large number of icons to a page, making the tree view both more useful and visually appealing. You can quickly search for recently modified pages, or for undefined nodes--nodes where a WikiWord has been entered but no page exists.
Overall, I found WikidPad interesting but somewhat baroque and confusing, especially as compared to commercial competitor ConnectedText. On the other hand, WikidPad is free, and it is not notably buggy or feature-poor; it's just a bit harder to get into. Since ConnectedText has a 30-day trial option, it is probably best to work with both and see which works for you.