The Google AdSense program allows affiliate advertisers to have Google place related product 
or service ads on their sites. If a site viewer clicks on one of these ads the site earns a commission. The amount of commission earned is determined by the value of the keyword. Advertisers determine the value of keywords by bidding on keywords that they would like to use for advertising their sites products or services. The more the advertiser is willing to pay the better their site is placed in the search results and the more likely someone will click through to their site. Once a person clicks on a Google Sponsored link a charge is made to the site account. The charges can range from a few cents to several dollars. Affiliate advertisers work hard to achieve high page ranking for particular keywords to attract more traffic and therefore earn more commissions.
The Learn Internet Marketing Tools website has some additional information you might find useful.
know what and where your target is before you can hit it. Many web sites are setup without going through this process and consequently they never fully realize the traffic flow they could possibly generate if they optimize their sites on appropriate keywords. Traffic, and lots of it, is what you need to sell anything on the Internet. So how do you hit the target? Well you need to know what people want and how they go about finding it on the Internet. For example, if you were trying to find some help for upgrading memory on a notebook computer. You might try a Google search using the keywords notebook memory upgrade. Google would return the first 10 sites of over 20 million sites that it found relating to the search. If my web site were trying to offer advice or products for these keywords it would need to be on the first page for anyone to find me. But how else might someone search for the same info. There is many different possibilities with many different results. So how can you bring people to your site that needs your products or services? It’s all about keywords and the words people use most to search with. If we could determine the most frequently used words we could develop ways to bring that traffic to our site and have a better chance of making a sale. Google AdWords is the tool to use to find the most search words and then use these words in your marketing (or pay Google) to bring the traffic. Go to Google AdWords and search the keywords notebook memory upgrade and see what you get for results. You will find that there is over 9,000 searches every month for those keywords and advertisers (Google Sponsored Links at the top and side of each page) are willing to pay as high as $3.62 cents for every click to bring someone to their site in hopes of a sale. If you were to setup a site to be an affiliate marketer Google Adsense would pay as mach as 25% of the click rate and affiliate, such as Amazon and eBay will pay a sales commissions of 5% to 60% or more of each sale. The profits can be considerable again depending on the traffic flow. So doing your research and optimizing your site on the right keywords will make a big difference.