In brief:

Advertisers bid on key words and phrases (like "cancer" or "cancer cure" for example) and Google gives top priority to the highest bidder.  It can range from a few cents to several dollars (I understand that the competition and price is fierce among attorneys biddiing for "personal injury", "class action" and such).  They charge for just the fact that someone clicks on a site where a Google ad is placed and much more for people actually clicking on the advertisers link.

Google then passes on a bit of the income to those who put the adsense strips on their site.  You do have to go through some hoops with the W-9 and verifying phone and address and you better play close attention to the TOS - I learned the hardway that telling people to support your site by visiting and clicking on some Google ads if the found them interesting is a capital offense - as in they kill your account, ban you and you forfeit all money owed to you at the time.  Don't like it?  Try fighting Google!

But a lot of people manage to generate tons of traffic by picking popular themes and putting up new contant and adding pages on a regular basis.  Some have figured out how to do it on pretty much autopilot with RSS feeds, news services, paid and free articles, etc., and a lot of other tips and strategems I don't know nearly enough about, and they make hundreds to thousands per day.  They also get hundreds of thousands to millions of hits per day.

To Dushan's credit, he places the Google ads way down at the bottom of the page and likely gets a ton of "impressions" versus actual clicks on the links.  Plus you are allowed up to three adstrips per page.  He could make way, way, way more if he put the adstrip at the bottom, top and side of each page.  But that would really damage the site and detract from the purpose of the site, imo.

BTW, the Google software is such that about as soon as you put ads on your website they figure out which advertisers go into each adstrip on each page.

DQ