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I checked the Adwords FAQ and saw this. Can some please expalain how it works. Thanks for your help.
Ad Group Ad Group Ad Group
One set of keywords One set of keywords One set of keywords
One or more ads One or more ads One or more ads
AdGroups allows you to group associated keywords (red widgets, cheap red widgets, quality red widgets)and assign a max CPC along with an ad copy. Remember that ad copy should always have the top keywords in the title or body of the ad. Have associated keywords in an adgroup will allow you to write good ad copies based on the keywords in the adgroup.
It would be inefficient to have high impression keywords like red widgets, green widgets etc in a single adgroup. Splitting them into seperate adgroups and adding its associated keywords will help definitely improve your campaign performance