AdSense is similar to AdWords in that it is part of Google's advertising network but differs by displaying AdWords advertisements on certain websites.
When creating websites, web developers leave a certain amount of area on web pages for adverts. The developers then paste code provided by Google so that adverts are displayed in the designated areas.
Website owners then earn money per ad impression (every time that website loads on a browser) or per the amounts of clicks an advertisement gets. The amount earned varies between different ads.
Google AdSense also gives a great deal of configurability for displaying categories of adverts, as well as providing metrics to members of its advertising program. These metrics can then be use to further tweak websites.
By allowing users to subscribe for free, the service has become highly popular and is used widely across the world.