The Mechanism
First a brief glossary of terms:
Adwords: The program advertisers use to make their adverts.
Adsense: The program Website owners use to display the adverts
CTR: Click Through Rate (the number of page impressions the number of clicks on a advert)

The most effective methods of advertising on the internet are Google's Adwords program and Overture which is now officially called Yahoo Search Marketing but still universally known as Overture. This method of advertising is called Pay per Click or PPC. The concept is incredibly simple; Google and Yahoo provide listings on a Per bid basis. You bid a certain amount of money for your specific keywords when someone types in a keyword and you have the highest bid then your advert shows up. On Google the adverts show up in the Adwords column on the right hand side of the page whilst Yahoo shows them as sponsored links at the top of the page. If someone then clicks on your advert, they arrive at your web site and you are charged the amount you bid. So, for example if you bid $.10 per click on 'widgets', and that's the highest bid, you'll show up at the top if It's the second highest bid you'll show up second etc. If 100 people click on your advert, then the search engine or PPC service will charge you $10.00.

Using Adwords to your Advantage
So now that you know how Adwords work you can use this to your advantage when building websites. If you build a site about a specific subject you can then use specific keywords to attract adverts. The best way to ascertain which keywords to use are by signing up for an Adwords account you will then have access to Googles Adwords tools which will show you which keywords are highest paying for a particular subject. In addition it will suggest alternative keywords. At this point it is probably wise to point out it is against Googles Terms of Service to specifically create a page just to target Adsense, Obviously if the site has lots of unique content then you are entitles to tweak the keywords to maximize your revenue.

Making Adsense pay
There is very little point adding Adsense to a page with no traffic. It is best to build your site and spend a couple of months driving traffic to the site, once you have a regular amount of people being driven to your site by the search engines then it is time to add Adsense. It is not just a case of putting Adsense on your site and waiting for the money to roll in. You should place the adverts carefully to maximize exposure whilst not impacting on the browsing experience of your viewers. Leave the Ads in position for a week or 2 and monitor the performance, also known as CTR. The change the position of the ads and the color and monitor this for any improvements. Publishers have been known to improve their CTR by up to 4 times by employing small changes. So time spent tweaking Adsense is time well spent.