An AdGroup has Ads and Keywords associated with it. When you search on Google for a particular Keyword, all AdGroups that are bidding on that keyword enter an auction for who gets to display their Ads first. The winning AdGroup will show an Ad on the search engine results page(SERP) in top position, followed by the second place AdGroup. The keywords(or other criteria like Audiences) help to determine when a particular AdGroup enters an auction and how much will be bid by that AdGroup. An Ad is just an Ad and is displayed if the AdGroup it belongs to places high enough in the auction.
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