Walter,
The difference between Google Adwords and Adsense and how do they apply is a good question. The following is an answer:
Google Adwords is a Pay-Per-Click (PPC) service for advertisers. Essentually, if you have a product or service to sell, you sign up and post ads based upon your relevant key words. If you search Google, you will see Ads displayed on the right hand side with links to the advertiser's Web site. Everytime a surfer clicks on the ad to visit your site, you get charged for the click based upon how much you bid and the success of your ad in generating clicks/competition. You want to ensure that your ad is placed on page 1 and preferably in the top 3. You can also track your conversion rate and test ads.
Google Adsense is for Web site owners who wish to generate addiional revenue by having Google Ads displayed on their Website. Once Google approves your site, you generate and post their code on your site. Google then looks at your keywords and displays appropriate ads. When surfers click on the Ads, Google pays you a % of the PPC charge. If there are no ads that pertain to your key words, Google will display a public service ad in its place.
You can also place their Search Engine code on your Web pages. If a visitor uses the search engine on your site and then clicks on an ad on the page he or she visits, you get a % of the PPC charge.
If you go to http://www.google.com/ads/ they will explain these services in more detail.
I hope this helps.
Good Luck,
Vito Santoro