I read that most literary agents prefer to take on new writers via referrals, as opposed to new writers they don't know, so it's harder for new writers to gain representation. Is this basically true?

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It makes sense. If you are referred then it is going to get you out of the publishers 'slush pile'.

I think it's to help weed out the stuff that has no real chance of publication. I know that a lot of publishing houses now only read stuff that's been submitted by an agent. And I know of agents that won't touch writers until they have been published. A bit of a catch-22 there...

Yes this is true; not all, but the vast majority of Agents will not accept new authors, and most traditional publishers will not accept your work unless it is presented by an Agent. For this reason, is why so many first time authors use the self publishing platform to get their works on the market; but even then be careful, for there are many that want you to buy your ISBN. They also want to charge you for the use of their site and charge for marketing your work; in my opinion, like predators. If there is any way I may help, please visit my website at http://www.mimaw.com and leave a message.

a referal implies that someone the agent knows already thinks the work is worth looking at. Agents DO take new authors, even ones that were not refered. there is no catch-22 or conspiracy to keep new authors from getting published. new authors who haven't gotten published tend to believe in this when the real problem is that their work is not ready to be published (it might be good, but not good enough for the market conditions). most new authors that go the self publishing route did it because they did not know any better and got suckered by the half-truths and outright lies self publishers use. a little research could have saved them a lot of money, time, frustration, and a ruined dream.