Could Someone Explain The Adwords Concept To Me?

I’m new to all this and have tried to research this by reading Adwords explanation on Google and other web sites but there’s something I don’t get.
Okay, let’s say a website owner wants to advertise his site by using Adwords…
He bids on a keyword, Google places the ad on searches which contain that keyword, and then user clicks on ad which directs him to the web site that the owner is selling widgets on.
Now here’s what I don’t get…I keep hearing that Google pays back the advertiser/publisher. The following was taken from an article on Adsense Arbitrage…
"Sounds pretty simple you bid $1 for a keyword, direct the traffic to a landing page with ads that pay $2 sit back and watch the profits roll in right? Well there’s a little more to it than that, it’s not rocket science but the more familiar you are with how both Adwords […]

Original post by Shadowplay