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Google AdSense is an ad-serving program that places ads that "make sense" - specifically, that make sense based on relevant content, and assumptions about who might be interested in that content. AdSense is an application of the broader concept of Contextual Marketing. Contextual Marketing is just what it sounds like. On a website about custom cars, you might have an ad for fancy wheels or car care kits. On a website about off-roading, you might have an ad for durable truck tires or spotlight rigs. A hockey site might advertise hockey sticks…and a tennis site, tennis shoes. Contextual Marketing just means aligning the ad serving with the context/nature of the website and its audience, the same way like items are grouped in a store. And the "context" can be cut much finer than website level; it can be page level, article level, and so on, so the ads always match the material they are appearing near, and thus, appeal to the interest of the reader/buyer at any given moment.
So what's in it for you - the website publisher/owner? That's easy. Every time a visitor to your site clicks one of these ads, you make money. The better the ads are targeted, the more clicks you get, the more money you make. AdSense displays easy-to-read, text-based, relevant ads that don't overshadow the content of your website or annoy visitors. Actually, you have seen hundreds of these ads yourself, as you'll realize in a moment.
Today there are probably only a few places in your website that can directly make you money, if any. The magic of Google AdSense is this: It allows you to earn money through every page of your website. On top of that, with algorithms used to align ad content with page content Google automatically selects and displays ads for your website that are likely to generate the highest revenue for you.
AdSense is an application of AdWords beyond Google.com
Making "sense" of AdSense means understanding that it is really an offshoot of the older Google model, AdWords. But they are not the same thing.