I believe this is because, surprisingly enough, "dynamic keyword insertion" isn't officially a supported Adwords feature (or, so I've heard).
But, using dynamic keyword insertion (DKI) is quite simple. You can use DKI in your Ad Text or destination URL.
Ad Text usage requires 'default text' which is back-up text that's used in case your dynamically inserted keyword is too long for the allowed number of characters per line.
The code is: {Keyword:Default text}.
** Note: When you capitalize the 'W' in 'KeyWord', Google will capitalize the first letter of each dynamically inserted keyword, as opposed to only the first letter of the first word. (There are other tricks here - perhaps, others can share those.)
Example:
Title: {KeyWord:Widgets} for Sale * 16 allowable characters (25 - 9 = 16)
Description Line 1: Buy more {KeyWord:Widgets} here * 21 allowable characters (35 - 14 = 21)
Description Line 2: {KeyWord:Widgets} all over the place! * 15 allowable characters (35 - 20 = 15)
If your keyword is over the allowable # of characters per line, the default text will show. Let's say your keyword was 'Big Bad Widgets' (15 characters long). Your ad would look like:
Widgets for Sale
Buy more Big Bad Widgets here
Big Bad Widgets all over the place!
URL usage doesn't require default text, simply place {Keyword} in the URL whereever you would like the keyword to be appended in your tracking code. This is especially helpful when using as an ad group's default URL - & when all keywords land on the same page. It saves the time of building unique URLs per keyword.
Example:
[widgets.com...]
Good luck!