> Does the Google algorithm look for the word "Advertisement" above or below an ad? That is an important question and there shouldn't be a problem answering it.
It is an important question; I've complained for ages that Google itself doesn't put the Google Ads tag above all its own Adsense blocks.
There are so many sneaky webmasters who have tried every book in the trick to get clicks on ads. Engineers could construct some decent algos after only one day or researching sites with Adsense.
The top three tricks are probably:
1) Ads on the left side where you expect the navigation menu.
2) Ads filling up the screen before the content (two or three consecutive blocks).
3) Ads with the same font and size as the site's text links.
> I think there is an easy way for Google to determine a low-quality content farm. Look at the outbound links. If there are a lot of low quality out-bound links, it is a low-quality content farm.
You're probably onto something there. Be careful who you link to.
> Also, is there a formula for ads above the fold? What percentage of space?
I'm pretty sure the math isn't very complicated. You just need to know a little css; the average user's screen size; and then you can start writing the code.
Google of course is already using code to get webpage screenshots. Imagine what a PhD could do with that to parse it and guess user experience.
My own guess on the algo is that it evaluates the landing page experience primarily for text and navigation. If the user can't see the text above the fold because of ads or images, they may leave instantly; and Google assumes some responsibility for that. If she can't see how to navigate, then it's another bad user experience via Google.
I work on a 1600x1200 screen so I need to adjust it to see how most visitors see pages.