Google's keyword-based advertising program is called Adwords ™. This program is Google's largest revenue generator, and works in conjunction with their industry-leading search engine as well as search partners and third-party content sites.
Adwords advertisements are keyword-driven, and appear next to or above Google's natural, or organic, search results. For example, if a Google visitor searches for "antique autos", Google will display Adwords ads from companies bidding on the keywords "antique autos".
Unlike Overture's relatively straightforward bidding program, where clicks cost fixed amount in a straight auction format (highest bidder first, next highest bidder second, etc.) Google uses an algorithmic approach with Adwords. Their model, rather than ranking by amount bid, ranks by expected revenue. The expected revenue is the combination of the bid price and the projected click-through. Hence, a lower bidder with a very effective ad may be placed higher in the Adwords results than a higher bidder.
Adwords is the "other side" of Adsense ™. When a web site owner puts Adsense on a site, the ads fed to that site are from Adsense advertisers who have opted to include their ads on this content network.
From the standpoint of the advertiser, the cost of Adwords would be fairly unpredictable due to the constant variation in position. To eliminate the unpredictability, Google lets advertisers select both a maximum bid price and a maximum daily spending amount. This insures that the advertiser never has a major surprise if for some reason the number of exposures or clicks jumps unexpectedly.