This is a video from Hal Varian, the Chief Economist at Google. It's a great in depth explanation of how the Adwords Ad Auction system works.

He explains how vital the Quality Score is to a Successful Adwords Campaign. The video explains the Quality Score is calculated. It also explains how it plus your CPC determines ad position. Quality score is the reason your Adwords Campaign will be a success, or the reason it will fail. The Free Adwords Strategy Guide show you how to improve your Quality Scores and Save Money. Request your copy of the Free guide.