AdWords, like most PPC programs, is a competitive auction-based system. That means you are always going up against competitors seeking the same ad slot. You are competing based not only on how much you bid but also on how high your quality score is.
The quality score is primarily based on how your CTR compares to your competitors’ CTR. to win an auction for an ad slot you need to win the ad rank score. Ad Rank score is your Max CPC bid multiplied by your Quality Score. Another way of looking at this is you are competing for ad slots based on what you are paying per impression compared to what your competitor is paying per impression.
The key to getting a high-quality score is to get the most clicks per impression as possible if you get more clicks than competitors you will have a high-Quality score and will be able to purchase ad slots at a lower cost than competitors must pay.
There are a couple of other factors that go into the total QS, like ad relevance to the keyword, and landing page experience, but they are relatively minor factors as compared to CTR. So, if you want to pay less money per click then write compelling ads that get high CTR.