Many websites include a section or two with the "Ads by Google" above it or below it. These are ads displayed via Google's AdSense. When you do a search on Google and see ads in the search results pages, they are generally AdSense ads.
AdSense - The Yin:
Google's AdSense is programming that "senses" the content of a page or search. It finds keywords on a web page or in a search phrase to determine the subject of the content. It does this by either "reading" the page, or taking a look at the search term that was typed into Google Search. It can "Sense" which ads in the system are relevant to the content or search and display them - thus: "AdSense."
Before ads on a page are displayed, AdSense searches its database of advertisers and finds ads that are associated with keywords on the page or in the search. Now AdSense needs to decide which of the thousands of ads vying for position are actually displayed. To make this decision, AsSense looks at the advertiser's bids for the relevant keywords. The advertisers that have a combination of the highest bid, keyword relevance and best click through get displayed first.
Google tracks clicks on ads and advertisers pay Google the bid price for each click. When the AdSense ad is on someone's web page, Google pays the website owner a portion of the payment for each click. The term "monetizing" your site refers to taking your existing site and placing ads like AdSense on it to make money (or finding other way to make money with websites). If you get 10,000 visitors and 10% of them click an ad that pays you, theoretically, $0.75 per click, you just made $750! Not bad for just copying some AdSense code (which Google provides) into your popular website's HTML (if your site is not popular, learn about SEO - Search Engine Optimization - from sites like AcmeWebResources).
AdWords - The Yang:
The other side to AdSense is AdWords. AdSense ads have lists of relevant keywords associated with them. Each keyword is bid on by the advertisers for placement in the results pages and on web sites around the world. The words that will prompt a display of an advertiser's ad are bid on by the advertiser. When an ad matches the words on a page, the ads are displayed; thus: AdWords. AdWords is the system in Google that is used to place ads that display in AdSense.
You can enroll in AdWords to pay for AdSense ads to drive traffic to your site. The first step is to sign up with Google. The next step is to associate keywords to associate with your site.
The idea is to drive traffic to your site through the use of relevant ads. The more relevant the ad to your content, the more targeted your traffic will be. Compose your articles around your list of keywords. Next, write an ad based on the keywords and assign keywords to the ad. You will bid on the keywords at the time you associate keywords with the ad. If one of your keywords is searched for or relevant to a site, and you have a good bid and relevant ad, your AdWord ad will be displayed. Only when someone clicks your ad are you charged by Google.
The more popular keywords are wanted by many competitors, so the prices per click can get pretty high. It is not uncommon for a click to cost $5 or even $10. If you have 10,000 ad clicks, after you account for your conversion rate (the rate that you convert visitors into buyers) you better be sure you are making more than the ad click costs! But it should never break your bank because you can set the bid limits and the monthly budget.
What if you can't afford $5.00 per click? Since the more popular keywords are so expensive, it is best to bid on less popular keywords because the cost per click is lower. Google presently has a minimum bid of $0.05 per click. If you can get those, you can reduce your advertising budget.
A popular site can make a lot of money, however, a lot of money and time can be wasted. To avoid waste, you have to learn as much as possible and get the right tools to do the research.