Click cost bidding

I don't exactly understand how bidding on a click for an advertiser works. What difference is there between bidding say 0.05$ or more, or less? Also, is bidding bound to a keyword, an ad or what? Someone enlighten me please.

Ok I figured it has to do with exposure. So if I am the lowest bidder, my ads will not start to show up until all the bidders above me that are on the same category hit their daily limit. Correct?