Placement is the fundamental factor that will effect an Ads performance - its click through rate. The first reason for this is simple - a visitor cannot click on an ad that they cannot see.

The second reason (which I talked about in Adsense Psychology) is that your traffic will interact with webpage and consequently your ads in the way that you want them to interact with them. This is obviously a generalization as not everyone will interpret your layout in the same way but the principle is sound.

For example, I generally don't like ads at the head of the page above your content and navigation nor at the very bottom below both of these. These postions are too reminiscent of the traditional banner advertisement and for me don't come close to taking advantage of what Adsense ads actually offer.

The bottom line is that Adsense works best when the ads are integrated into your website as additional content. Adsense generates ads that are related to the actual words in the content of your page. To perform at it's best they have to be placed next to these words.

If you think it through this is just common sense.

This leads us to two places where content is contained on each and every website.

1. The actual body of that particular page - If you've built your website correctly then each page will be about a distinct topic. As each page differs in what it provides the Adsense ads will vary to match these differences. For example, a motorcycle insurance page will generate different ads to a motorcycle parts page. This means that the hottest spot for Adsense on every page is roughly where I've included the large rectangle on this page. Inside the page topic and above the fold.

2. The website navigation - Your navigation includes further pages which may be of interest to your visitor. Relevant Adsense Ads will also be of further interest to your visitor and therefore, a good supplement to a large rectangle ad inside the content of your webpage is a 160 x 600 skyscraper in your navigation (this often works best in the left navigation although I have several sites where the conversion is good on the right). Adlinks work well here too.

Google has produced a heat map to assist Adsense Ad positioning which pictorially confirms what I have been saying here. You can see it and read Google's own answer to the question of Ad placement here.