Simply stated, pay per click programs are advertising systems where an advertiser bids and pays an agreed amount for each click delivered to his or her site from a link or listing keyed to a specific search term, area of a site or even a banner.

Think of it this way:
If I gave a $20 bill for every $10 bill you give me, you'd be giving me a lot of $10 bills wouldn't you?
That's what PPC is all about.

The most common PPC program is Google Adwords. A good example of this are the ads embedded into this text and at the bottom of the page. Websites have bid for ad placement in these areas and Google automatically fills in the winning ads that match the page content.

The following is a post from ABestWeb forum. The posters name is Leader and he is very on top of the PPC game:

One of the most important issues surrounding PPC is bid price. If you are the one bidding, it is imperative that you keep you costs low. It's easy to get carried away and keep bidding up, either out of trying to "beat" the other bidders, or just from trying to get the traffic coming faster. This is the way to shirt loss. BID CHEAP, or at least pretty cheap.

$18/day may not mean much of anything - other than you are paying too much. If you pay $1/click, that'd only be 18 clicks/day, and at most commission rates, you'd end up solidly in the red once the average conversion ratio is considered. If you paid ¢50, that'd be 36 clicks/day for the $18--still not enough to make money from many, if any, merchants.

Dump that bid down to ¢20, and you get 90 clicks for the $18. Now you're in the ballpark of possibly getting a sale most days. But, it still cost you $18 for the sale! So, make sure you're promoting something where the commission is more than $18, or you lose! At 10% commish, you'd have to be pushing a $180 item just to break even in this scenario... pretty hard to sell one of those every 90 clicks, with most merchants. And remember, sometimes people click through to the expensive item, decide they really can't afford that--and buy something that cost 1/3 of what you expected them to buy. When that happens, you lose.

So bid cheaper yet, ¢15, better yet, ¢10!

$18 at ¢10 per click = 180 clicks. Much better. Now you're going to average more than a sale/day if the merchant converts at 1% (but it'll be SPIKEY, some days 2 sales, some with none, etc.!). At that rate, you aren't limited to hoping someone drops $180 just to break even. And you have "room" to test more merchants and products without ending up wearing a barrel right away.

TRAFFIC LEVELS
At such cheap bids, you run up against the fact that your ad doesn't show very prominently. So it can be hard to actually get the 180 clicks. How you get by this, is NOT to bid up! You run MORE CHEAP ADS so all the onesy twosy responses add up to the 180 clicks. It is better to run 100 cheaply bidded ads that get (averaged out) 1.8 clicks each, or 300 that get .7 of a click each (about 1 click every 36 or so hours), than it is to run 1 expensive one and get 18 clicks/day. What you do NOT want happening, is a flood of expensive clicks banging in there quick. PATIENCE is key.

FINANCIALS
Make sure to only use PPC for only items/merchants whose products and commission are high enough to reasonably expect a profit, considering their conversion ratio. The sweet spot is a decently-expensive item--but that's not so expensive that people will bother with comparison shopping! Comparison shoppers the enemy of PPC bidders. They click, click, click, like mad, jacking up your costs. And they may even click between your ad, and other ads, causing a new click for each comparison they do! Not only that, they may never actually buy the thing online, or at least, not from your link!

Those infernal people are only good for the PPC engine, which watches all of this with great Ebenezerish delight as your account is drained dry! So avoid bidding on any comparison-drawing type of thing. And avoid any verbiage in your title or description that would encourage price-checking. If the merchant's site encourages people to check and see how expensive the rest of the place is - avoid sending paid traffic there!

You want the people to BUY! IMMEDIATELY! With a site and free traffic, that's just "preferable." With PPC, IT'S ABSOLUTELY IMPERATIVE that people do not use your ad as a jumpoff for comparisons!

Monopolies are the best. That is, where no other merchant has The Item. That way, the clickers can't comparison shop, because there's nobody to compare with. Plus, if they want the item, they HAVE TO buy it from the one merchant who's got it. If that's YOUR merchant, you've got a huge advantage: the only competition will be their other affiliates.

The above is why small merchants are King. Some of them have dud items, but if they've got a good item and few affiliates bidding against you, You Win, as long as you keep your bid amounts right.

STEALTH NUKES!
You may find yourself nuked by stealth. That is, things that cause you to lose your shirt that you wouldn't expect until you have it happen! This is a way to describe what happens if you hit a DEADBEAT merchant. A deadbeat is the worst kind of nuke, because their reports SAY you're doing great and cause you to keep bidding. But then, the check doesn't come! Leaving you not just out the commish, but out the PPC money as well. NUKED!

So do your due diligence before bidding. Never mind how big the name is--some of them are the slowest payers and nonpayers. SEARCH ABW for posts about a merchant before bidding. If they have complaints, see what kind. If the complaint is that they don't communicate, etc. ("social issues") no biggie - you still win if they know how to cut checks and leave their tracking code on. If the complaint is that they don't pay, or reverse a lot - RUN! Deadbeats are death!

I already gave comparison shoppers a righteous flaming earlier. They will nuke your PPC account and wreck your conversion ratio and network-reported EPC while they're at it.

Undesirable items that people are curious about (the "who's selling THAT!?" effect). This is another Stealth Nuke. Avoid things that people hear about, maybe from blogs or TV - that are generating the wrong kind of interest. Sometimes, people just want to see the weirdness rather than actually buy any. (Better to make a web page for those "weirdness" items - get free SE traffic to it - and then put AdSense on it, so you earn PPC money, rather than spending it.)

This post is overlong already, so I'll stop now. But, keep in mind that there is always more to learn than what can be put in one post!