How does the Google AdWords auction work?

The Google AdWords auction works through a process that determines which ads will appear on a Google search results page, and in what order. Here’s a breakdown of how the process works:

1. Ad Rank Calculation
When a user performs a search, Google’s AdWords system runs an auction to determine the Ad Rank for each ad. Ad Rank is calculated using several factors:

Bid Amount: The maximum amount an advertiser is willing to pay for a click.
Quality Score: A metric based on the ad's expected clic

It's called Google Ads now (no longer AdWords) and, once you launch a campaign, Google will run your ad often and base your keyword bidding based on how many people clicked on it - if they clicked less, then you'll have to pay more for a high ranking for the paid ad. If they click on it more than other ads, they you will bid less than those.