For this I am going to assume you know the basics of how Google Adwords work.

Dynamic Keyword Insertion is a way of increasing visibility and relevancy to a search engine user. You have probably seen this trick done on google for years by bizrate.com and ebay affiliates.

It tailors the ads served to match the keywords in the search to the ad copy. Also if the ads match the exact keywords those keywords become bold in sponsored results.

Here is an ebay example search for car stereo:

google-car-stereo-ad.gif

Now for a slight alteration in the keywords lets search for car stereos:

google-car-stereos-ad1.gif

Same ad copy with one slight difference, it is a plural, but this difference creates a much higher click through rate.

How to do it:

Write the ad copy with the dynamic keywords:

{Keyword:default}
Fantastic prices on {keyword:default}
Deal with Canadians and save
www.ebay.ca

Notice that in the title the word Keyword is capitalized and that it is not in the ad content. This differentiates when the dynamic keywords will be capitalized. The word default in the insertion code can be what ever you want it to be, when your ad does not display the keyword it will revert to this default keyword.

This is a very simple way to bump CTR, however some claim it will decrease your quality score and increase your bids on keywords.

I am using it and have not noticed any decrease in quality score, but there is a definite increase in CTR.

Try it out for yourself.