When determining which ads to show on a Google search result page, the AdWords system evaluates some of the user's previous queries during their search session as well as the current search query. If the system detects a relationship, it will show ads related to these other queries, too.There have been hints of this coming for some time. Last year, there were suggestions that this feature was being A/B tested. Earlier, Google did a milder form of personalized ad targeting if the immediately previous query could be found in the referrer. Now, they finally have launched real personalized advertising using search history out to everyone.
It works by generating similar terms for each search query based on the content of the current query and, if deemed relevant, the previous queries in a user's search session.
For more on Google's personalized advertising efforts, you might be interested in my earlier post, "Google launches personalized advertising", on the interest-based behavioral targeted advertising Google recently launched for AdSense.
Please see also my July 2007 post, "What to advertise when there is no commercial intent?"