Google's sponsored listings appear on the top and on the right-hand side of regular search results.
The basic concept of PPC bidding is that advertisers bid for particular search terms (= keywords). The highest bidder gets his/her advertisement displayed at the top of the sponsored listings next to Google's search results. The second highest bidder gets the next sponsored listing and so on.
However, Google Adwords work differently than most of the other Pay-Per-Click search engines such as Overture, FindWhat etc. Google does not simply put the highest bidder's advertisement at the top of the list. It also ranks the advertisements according to their popularity. Therefore, if more people click on an advertisement it will get higher ranking and better position.
In conclusion, your ad's position is determined by following factors: your daily budget, maximum cost-per-click, your ad's actual click through rate and your average ad's position.
From the above, you can not directly control your ad's actual click through rate and average position. Therefore managing your keywords on Google AdWords is a big challenge and usually consumes a great deal of time.
If you do not manage your keyword bids properly, you will waste your advertising money on Google Adwords. A good way to get around this is to use automated bid management software available on the market today. In general, those tools allow you to control your ads listing based on rules you specify.