Google AdWords sez....

Organize your campaign by theme In each campaign, create separate ad groups for each of your products, brands, or types of services you offer. Each ad group can then have a highly related set of keywords and ads that match the specific theme. By doing this, your ads can highlight exactly what a customer is searching for.
Choose your keywords carefully Use specific keywords that directly relate to the theme of your ad group and landing page. Keywords that are too broad can lower your performance by generating many ad impressions but few clicks. One-word keywords are likely to be too generic, so try using two- or three-word phrases. Use the Keyword Tool to generate keyword ideas.
Include keywords in your ad text Include your keywords in your ad text (especially the title) to show users that your ad relates to their search. If your ad shows when a user searches on a keyword in your ad group, the keyword will appear in bold in your ad text.
Use the right destination URL Make sure that the destination URL (landing page) you use for each ad is the most relevant page within your website -- ideally, a page dedicated to the specific product or service that's highlighted in your ad.
Track your success To make informed decisions about how to optimize your campaigns, review your campaign statistics. To measure your success, use conversion tracking to see which ads and keywords bring the most to your business.

(excerpt from a Google AdWords help screen written for a Campaign Manager audience}