In July 2005, the Google’s AdWords team introduced minimum bids for keywords based on a Quality Score. This system was introduced to manage low-quality websites using Google’s all important revenue generating AdWords product. AdWords has always been a victim of its own success, because it sells the highest quality traffic – in the highest volumes – it has always been attractive to genuine, quality websites and websites at the lower-end of the market, also known as spam.
Under considerable pressure to clean-up its search results and improve the quality of ads for its users the AdWords team chose to use a purely financial measure. The Quality Score system was introduced so that lower quality websites (spam) would have to pay more than higher quality websites. This was smart, because it allowed Google to get the best of boths worlds. On the one hand they improved ad quality, and on the other they maintained a lucrative source of revenue (just at a higher price than before).
4 years later, the overall effect is that the cost of advertising on Google has increased significantly for both spammers and quality website owners and there are still many keywords crowded with spammy advertisements. Today Google has announced a futher update to the Quality Score system, and the AdWords team continue to try and manage the tricky balancing between quality and spam. Web spam is like junk-mail; you can never stop it completely.
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New announcement today sounds like Google could be relaxing the QS score but not being so weighted to CTR: http://www.techcrunch.com/2008/10/31/google-tweaks-adwords-again-to-reward-quality-and-juice-revenues/#comment-2520142