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Yo REALLY need to go throu their help pages.
AdWords is Cost PER CLICK. So advertiser pays for clicks.
There is CPM (Cost per 1000 impressions) also, but that is possible only on content side, not SEARCH.
Why ask.. Do a search for a popular phrase on G and check it yourself. Some ads get displayed at the top before organic results and some on the right.
Things keep changing as bids change and ad positions also keep changing depending upon CTR and other factors which G only knows.
Adwords has become very competitive. Unless you take a lot of time to research and learn (and sounds like you have a big learning curve ahead of you there), you may want to hire an expert if you plan on spending a lot of money on adwords.