What is ADSENSE

AdSense is an ad serving program run by Google. Website owners can enroll in this program to enable text, image and, more recently, video advertisements on their sites. These ads are administered by Google and generate revenue on either a per-click or per-thousand-impressions basis. Google is also currently beta-testing a cost-per-action based service.
[edit] Overview
Google uses its search technology to serve ads based on website content, the user's geographical location, and other factors. Those wanting to advertise with Google's targeted ad system may sign up through AdWords. AdSense has become a popular method of placing advertising on a website because the ads are less intrusive than most banners, and the content of the ads is often relevant to the website.
Currently, the AdSense uses JavaScript code to incorporate the advertisements into a participating site. If it is included on a site which has not yet been crawled by the Mediabot, it will temporarily display advertisements for charitable causes known as public service announcements (PSAs). (The Mediabot is a separate crawler from the Googlebot that maintains Google's search index.)
Many sites use AdSense to monetize their content and some webmasters work hard to maximize their own AdSense income. They do this in three ways:
They use a wide range of traffic generating techniques including but not limited to online advertising.
They build valuable content on their sites which attracts AdSense ads which pay out the most when they get clicked.
They use copy on their websites that encourage clicks on ads. Note that Google prohibits people from using phrases like "Click on my AdSense ads" to increase click rates. Phrases accepted are "Sponsored Links" and "Advertisements".
The source of all AdSense income is the AdWords program which in turn has a complex pricing model based on a Vickrey second price auction, in that it commands an advertiser to submit a sealed bid (not observable by competitors). Additionally, for any given click received, advertisers only pay one bid increment above the second-highest bid.

History
The underlying technlogy behind AdSense was derived originally from WordNet and Simpli, a company started by the founder of Wordnet — George A. Miller — and a number of professors and graduate students from Brown University, including James A. Anderson, Jeff Stibel and Steve Reiss.[1] A variation of this technology utilizing Wordnet was developed by Oingo, a small search engine company based in Santa Monica founded in 1998.[2] Oingo focused on semantic searches rather than brute force string searches.[3] Oingo changed its name to Applied Semantics, which was then bought by Google for $102 million in April 2003, to replace a similar system being developed in house.

[edit] AdSense for feeds
In May 2005, Google unveiled AdSense for feeds, a version of AdSense that runs on RSS and Atom feeds that have more than 100 active subscribers. According to the Official Google Blog, "advertisers have their ads placed in the most appropriate feed articles; publishers are paid for their original content; readers see relevant advertising — and in the long run, more quality feeds to choose from".
AdSense for feeds works by inserting images into a feed. When the image is displayed by the reader/browser, Google writes the ad content into the image that it returns. The ad content is chosen based on the content of the feed surrounding the image. When the user clicks the image, he or she is redirected to the advertiser's site in the same way as regular AdSense ads.
AdSense for search
A companion to the regular AdSense program, AdSense for search lets website owners place Google search boxes on their pages. When a user searches the web or the site with the search box, Google shares any ad revenue it makes from those searches with the site owner. However, only if the ads on the page are clicked, the publisher is paid. Adsense does not pay publishers for mere searches.

How AdSense works
Each time a visitor visits a page with an AdSense tag, a piece of JavaScript writes an iframe tag, whose "src" attribute includes the URL of the page.
For contextual advertisements, Google's servers use a cache of the page for the URL or the keywords in the URL itself to determine a set of high-value keywords. (Some of the details are described in the AdSense patent). If keywords have been cached already, ads are served for those keywords based on the AdWords bidding system.
For Site targeted ads, advertiser can choose the page or sites he wants to display ads on and pays on a CPM basis (cost per thousand impressions)
For referrals Google manage the subscriptions on a long term, to add money when the visitors either download the product of subscribe, that depend upon the sort of product.
For search, advertisements are added to the list of results and clicks on them make money.
To protect webmasters from bad use of their code, it is possible for them in the configuration panel to make a list of websites where advertisements are published. When other sites use their JavaScript code, clicks on ads are ignored.