Google AdWords Matching Overview

Broad Match:
By default, Broad Match is what Google assigns to new keywords entered into a campaign.  This means that your ad will be shown if the words in your keyword phrase match the searchers terms IN ANY ORDER, and with other words in front of, or behind, your keywords.  Broad Match keyword phrases may also be shown for "expanded matches", which include synonyms and plurals of your selected keyword phrases. 

The benefits of broad matching are that your ads get shown a lot more than with some of the other parameters. 

The cons are that you get unwanted ad impressions and clicks and also you get a lower click through rate, which hurts your placement ranking.  There is little reason to use this default and much more control over when your ads are shown can be obtained by using the Phrase Match option.

Phrase Match:
Phrase matches must appear in the same order as you enter them, but may also have other words in front of, or behind, your exact phrase.

Exact Match:
Triggers your ad only when there are no other words in front of, or or behind, your keyword phrases.

Negative Keywords:
Used when you want to exclude certain keywords from triggering your ads.  You may want to filter out searches with the words "Free", "Cheap" and so on.

Summary:
Google advises that for better clickthroughs, you should use the keyword matching options to better target your ads.
 

Intro to AdWords | Matching Options | Geographic Targeting
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