Contextual advertising is a form of targeted advertising for advertisements appearing on websites or other media, such as content displayed in mobile browsers. The advertisements themselves are selected and served by automated systems based on the content displayed to the user. See Wikipedia for more info.

Google AdSense was the first major contextual advertising program. It works by providing webmasters with JavaScript code that, when inserted into webpages, displays relevant advertisements from the Google inventory of advertisers. The relevance is calculated by a separate Google bot, Mediabot, that indexes the content of a webpage.

Googles Adsense programme delivers contextual ads that look like Adwords but are actually banners generated on the fly to partner sites. Resources..

Since the advent of AdSense, Yahoo! Publisher Network, Microsoft adCenter, Ad-in-Motion and others have been gearing up to make similar offerings.

Here’s one best example of ad text for PPC Campaign on Google Adwords:
Save 20% OFF Pumice Stone —-> Strong word (SAVE). Contrast (OFF – capitalize)
Pumie Offers A 3-day Special Promo —-> Branding (Pumie – fictitious company name), Urgency (3 day special Promo)
Get Your Pumice Stone For Only $3! —-> Call to action (Get). Detailed ($3 and 20%)
www.Example.com —-> Display URL is your site

Also, notice the first letter of each word used – all are uppercase

Visit http://adwords.google.com/support/bin/answer.py?hl=en&answer=39431 for more info on how to create competitive Text Ads.