In simple defination it's money earning program by online advertising. You can see these adv's on online internet pages with label as "Ads by Google". Whenever any one click on those adv's then someone in world will get some amount of money for posting this Adv.
This program is started by google.
For more details visit following link
AdSenseFAQ on Maharashtraspider
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Adsense is an Advertising program that pays its publisher for per click.
But they have strict process of approval.
So, be sure your application meets there policy guidelines.