As more and more people click on your ads when they see it in Google or any of its partner sites, your click through rate increases. Click through rate is a rough approximation of relevancy, in many ways this parallels the idea of grading the web on links. A relevant ad will have higher click through rates than a non relevant listing.
Google ads are not strictly price driven. Some think the added relevancy factor relates to the words in the add, while this is somewhat true, the true multiple is click through rate. If a web site has 3* the click through rate, that means Google can sell 3* as much advertising. To reward careful and considerate ads Google chops this price to 1/3 of what it would be with a site that had a third of the click through rate.
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