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Adsense allows you to add adverts to your website. You get paid everytime someone clicks on an advert on your site. Usually you'll get paid 1p per click, but you can get paid 10p or more if you're lucky! This depends on what the advertiser has set their amount per click to.
Adsense is free to join. It won't cost you anything. I have adsense on my sites. I've only earned £2.25 so far, but my sites are relatively new. It all takes time!
You can add ads by copying and pasting the HTML code from adsense onto your page.
There are lots of ad sizes and designs to choose from. I think you can add three ads per page, but I prefer to stick to just one per page. The type of ads displayed will be automatcally chosen by Google to match the content of your site.
I didn't know what I was doing at the start, but it's quite easy to get the hang of. Practice makes perfect!
Take a look at the adsense text ads on my site (in the right hand column). As you can see, I have chosen colours that kind of blend in with the rest of the site.