how does adwords work?

Good links you received to review.  Would also suggest that you can bid on "run of site" buys -- bidding across an entire site or group of sites if you know your product or service is a good fit for that site's demographics.  But read, read, read and read some more.

One thing to be cautious about if you plunge into the PPC pool is that your early testing mistakes can haunt you in the beginning.  Google (especially) uses a "Quality Score" that is based  in part on the click-through rate of your ads.  If that rate is historically low for those words or for your account as a whole, you may find yourself paying more for a keyword or site buy than others.  You may even pay more than others who appear above you. 

I would enthusiastically recommend using a consultant or agency rather than using the trial and error approach.  That may have worked years ago, but probably isn't a great idea now.

Yeah, going to a consultant sounds like a great idea, but how do you get new consultants if no one else learns it? Quite the conundrum, no? Personally, I learned it by doing what you suggest, READING. Yes, it is boring. Yes, it seems like everything is written in Greek at first. But it will get easier and as you become more comfortable with the concepts, you can start trying your hand at a campaign. You have to start somewhere! Also, I think having an account on Gooruze helps tremendously because you are in the company of people who really know what they are doing and are comfortable trying new concepts even if you aren't. Good Luck!

Basically you place ads for each keyword you want to bid on.  You then put in a max amount you would want to pay per click of that ad.  The ads show up at top and/or the right side of google search results.  You sell widgets. Bid on Widgets with an ad something like,  Widgets Up To 70% Off.  Free Shipping On All Widgets. Sale Ends Soon.  someone searches the term widgets, sees your ad, clicks on it, and hopefully buys from your site. 

Fro a more indepth answer, read through link below.

http://www.google.com/adwords/learningcenter/

 

Here's a great tutorial
http://www.google.com/adwords/tutorial.html