The official video from google explains how the bid auctioning takes place and how important is the quality score. CTR, Ad quality and page relevance and quality all add to the google adwords quality score. The Google’s Chief Economist explains how why the highest bidder may not show because of the quality score and actually gives information about the formula which decides how much does the advertiser pays for the click. It is lower then the bid amount because the bidder below the winner contributes to the price with his ad quality and total adwords bid. This is a great video to get you started on improving your adwords budget, traffic and conversions.