wen u use adsence in ur sites u get a percentage of amt. (wen someone clicks or according to number of visitors 2 ur site)...

adwords u create ads to promote ur product (wen someone clicks on them or no. of times ur ads r displayed) u give certain amount to google.

i.e ... for eg- A creates ads in adwords and says he will give $1 per click to google --

B has a site using adsense and in his site ads created by A are being displayed. wen some one clicks on this ad... B gets a percentage of $1(wat A is paying) and rest amount into google's pocket..