Hm. it seems like you're mixing up Google Adwords and Google Adsense.
Google Adwords is an advertising company. You create an advertisement, and then pay for each time someone clicks on your advertisements, and the amount of money you have to pay is dependent on the keywords that you choose. If the keywords you choose are more competitive (meaning that more people are wanting to create ads for that keyword), you will need to pay more.
Of course, the question now is: How does Google Adwords advertise the advertisements?
That's where Adsense comes in. Google Adsense is FREE to join. You set up advertisement blocks on your website with some copy-and-paste coding they provide you (a 300 width x 250 height advertisement block, for example), and advertisements of the same size will generate on your website inside those blocks.
The advertisements that appear is dependent on what your website is about (contextual ads), AND if the person viewing your website is logged into their Google Account (they will then see personalized ads instead of contextual ads).
Every time someone clicks on the Advertisements that you have displayed on your website, you get paid a percentage of what the advertiser paid. The percentage is never disclosed, but it's a share between you and Google Adwords.
Joe Smith is a famous Los Angeles chef that sells his own cook books. He created a one-page website to sell his books. He goes to Adwords and sets up an advertisement campaign. He creates a 300x250 advertisements and targets the words "good cook books", which costs him $10.00 per click.
On the other side of the country, Amy Johnson is a New Yorker who has a cooking website that gets over 10,000 page views every day. She sets up a single 300x250 advertisement block on the sidebar of her website to generate revenue.
Joe Smith's advertisements start appearing on her website. She gets $5.00 per click (the other $5.00 goes to Google).
For every 1,000 page views on Amy's website, 5 people are clicking on Joe Smith's 300x250 advertisement (a 0.5% Click-Through-Rate, or CTR). She is getting $25 for these 1000 views.
So that means on a daily basis Amy is making $250 from Google Adsense, and Joe Smith is paying $500 to Adwords for his advertisement campaign.
I should note that realistically, advertisements from different people will appear on Amy's website, not just advertisements from Joe Smith. Because of this, the pay per click can range anywhere from a few cents to a few dollars.