On the easy explination, postition is determined by CPC x CTR (cost per click times click through rate).
On the more difficult side, here's an example to start reading:
[webmasterworld.com...]
The 3 places to start learning more about AdWords:
AdWords Library:
[webmasterworld.com...]
Jumpstart links for those new to adwords:
[webmasterworld.com...]
AdWords Learning Center:
[google.com...]
How to search WebmasterWorld:
[webmasterworld.com...]