Who clicks on ads?
Well, I have, but very rarely. Only if I see something that really catches my eye. I think the last one was for a school-based IT package running Linux that I hadn't heard of (I do IT in schools, and prefer Linux). And enough people must not only click on the ads but FOLLOW THROUGH WITH A SALE to make it worthwhile, otherwise it would have been consigned to the dot-com bin years ago.
The problem is making them relevant, which for some sites is nearly impossible. Having said that, within a few days of a new page on my site being made for a obscure games console (the GP2X) targetting emulation of old systems, all my Google ads on the page were for related items - MAME ROM's (not sure you should advertise that on Google, to be honest), paid-for emulators, "arcade classics" video games, video game consoles, accessories, places to buy the GP2X, games for the GP2X, etc.
There is no way I could get that sort of advertising anywhere else, because it's such small scale but highly relevant. And people DO click on those, my adsense logs tell me they do and I can see why, for some of them. I really didn't expect Google to pick up much that relevant at all... I have a blog on Blogger that often mentions Linux, uses it as a keyword all the time in articles, is linked to from several Linux projects and I get a Linux-related advert about one in every twenty that I've seen and the rest are usually random rubbish (I once had one for selling horses and I couldn't work out where it had come from, there were no keywords related to that at all).
My brother runs a popular Scouting site and his page is filled with adverts for tent manufacturers, campsites, people who sell maps, compasses, books, all sorts. Not only do they make money from advertising on his site, but they will fight over paying him money to place an ad "just for them" - he gets a phone call from a company about once a month, even though all his ads are now Google ads.
For many years before he started with Google ad's he had a popular webstore who were selling related products advertising on his website and they kept wanting to renew year after year. He makes enough money off the site adverts to keep it running and fund a couple of camps a year for a few dozen kids. But Google ads will pay him more than any one company will risk on just one site (the first round of "bids" after introducing Google ads was funny because the company's were shocked at the price it would cost to supplant the Google ads)
Think about it, if one person a year buys a tent off the store, or even a couple of small pieces of gear, the advertising has paid for itself. With *thousands* of visitors a day, all within a certain demographic, all looking for highly-related information, all potential customers and a vast percentage of them actively seeking out products to buy, that's well worth the payoff. My brother has even found several new companies to buy stuff from for himself (but he couldn't click on their advert because that's against Google policies) that he would never have heard of if their ad hadn't appeared on his own website.
But random Google ads splattered over random pages from which Google can't extract keywords - nobody would ever click them except by accident and then they won't follow through with a sale. It's the targetting that makes the difference, and I've clicked on properly targetted adverts quite a few times when doing searches for companies to purchase from. Although I don't think I've ever hit one of those ones you get in a Google search listing.