This is my understanding as well. Google indexes each page on your site as best representing "some keywords". It will then display ads that are relevant to those keywords. The neat thing I have noticed is that google rotates advertisements from various categories (most pages will fit into more than one). Initially my pages were displaying a wide variety of ads, now they seem to have settled on particular ads. Along with that fact is that my click through rate has been getting higher over time.
Is google keeping track of ad clicks on particular ads/sites? I haven't really read that much about it, but it certainly seems to be the case.
