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Whenever Google displays your ad, on their search results page or on a partner site, an impression is made. If your ad is shown 5 times, then your ad has made 5 impressions. If your ad is clicked on, it is called a "click". The clickthrough rate is computed by taking the number of clicks divided by the number of impressions.
Clicks
------------------ = Clickthrough Rate
Impressions
Let's say your ad was displayed 100 times or had 100 impressions and was clicked on 5 times, the clickthrough rate would be 5% (5 divided by 100 = 5%). If your ad has 500 impressions and was clicked on 6 times then the clickthrough rate would be 1.2% (6 / 500). The clickthrough rate is abbreviated as CTR.
 When you create an ad campaign, you determine how much you want to spend for your keywords by setting the maximum cost-per-click (CPC). So, if you are bidding $0.50 on the keyword "calculator" and a competitor has also bid on the same word at $0.35 maximum CPC and the $0.35 bid was the highest bid, you would place higher than your competition. But you really only needed to out bid your competition by $0.01 so a bid of $0.36 maximum CPC would have sufficed. Google does something very interesting in cases like this. Instead of charging you your maximum CPC of $0.50, they only charge you $0.36, one penny more than the next highest bid. This function is called the "AdWords Discounter". If the current maximum cost-per-click is set to $0.08 and you bid $10.00 per click, you will be charged $0.09 if someone clicks on your ad. (NOTE: You can gain the top location by using "bullying" tactics by setting a high CPC on bids knowing that you will always outbid everyone else below you by 1 penny.)
The ad that is willing to pay the most for the keyword generally will get the higher position on the Google search results page, right? Well, not really, again Google does some interesting things that doesn't necessarily benefits the guys with all the money. Google actually aims to provide the most relevant ad to the searchers, which means the top spot might be achieved with a lower CPC bid but a more relevant ad. Google does this by taking into account your max CPC and the clickthrough rate of your ad. So, the higher your clickthrough rate and the higher your max CPC... the higher your ad will appear.
 If your ad is not getting clicked on, then Google will consider your ad irrelevant and not show your ad. Only ads that are actually clicked on for a search are considered relevant. Google will notify you before your ad is disabled to give you a chance to increase your clickthrough rate. The clickthrough rate can be affected by changing the headline and/or text or by changing your max CPC. another way to increase your clickthrough rate is to bid on other relevant keywords or more specific keywords. Writing better or more interesting eye-catching ads can also increase clickthrough.
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