Adsense works in conjunction with Google Adwords, selecting ads to display on your site from Adwords' massive advertiser database. And since Google provides the ads, you don't have to worry about mantaining relationships wit individual advertisers.
Simple explanation - Google collects ad information from webmasters who want to advertise their sites. These advertisers bid on keywords and create text or image ads related to their purchased keywords. These ads are stored by Google. Now you sign up for adsense and add te adsense code to pages on your website. If te content on your page matches keywords purchased by any advertisers, those specific ads are displayed on your site pages by the ad sense code.
Detailed below is information on adding adsense to your site, and tips for optimizing performance of ads and maximizing revenue from Google Adsense.
Implementing Adsense
The full explanation for the above block diagram is available here. Just to be clear, the above diagram is not official, or verified to be correct. No one outside Google knows exactly how Gogle's algorithm works. But it does give a clear picture of how Adsense and Adwords interact, to produce a superlative and unmatched contextual advertising network with a seamless and fully automated system, from accepting ads to displaying them, accepting money from advertisers and paying it out to publishers.
Let's get down to how to implement Google adsense on your website. It's a simple matter of signing up with adsense, specifying options such as link units, text and background color options and then copying the code and pasting it on your website templates, or if you are not using templates, on specific pages. This however, does not get the cash register go ka-ching, even if you have healthy traffic. The main reason is that Adsense is now so universally known, that just about everyone wo uses the internet knows that it is an advertisement, and the first reaction from visitors to your site is to ignore the adsense ads.
You need to do some trail and erroe and find out three or four combinations of ads and locations on your pages, where the ads work and you get more clicks. I say 3 or 4 combinations, beacuse once you have a successful combination of winning ads and locations, your visitors, over a period of time, say one month or two months, will start ignoring the ads. Then its time to change the ads and move to the next winning combination. That's why you need at least 3 or 4 combinations of well designed ads, placed in locations which entice clicks. Google as comipled a helpful guide to optimize adsense ad performance, for specific kinds of pages, such as blogs, forums, etc. You can view the guide here. If you have multiple sites, you can use the same adsense code, or PIN, to place ads on all sites, and monitor and tweak the performance and earnings from each, by means of using channels and filters.
Summary
Generally speaking, Adsense will make you enough to pay your hosting charges, but not enough to help pay your mortgage. The cents keep coming everyday, and it slowly collects into dollars. If you want a lot of dollars from adsense, there's two simple things you can do. Increase your traffic, or start dozens of sites. Ad performance notwithstanding, if a 100 visitors make you $4, 1000 visitors will make you $40. Simple as that. And finally, Google will pay, only by check, and only when the amount reaches $100. Update : supermom_in_ny points out that Google also pays by direct deposit to your bank.
