This is called dynamic keyword insertion. Basically it copies the search string, or else subsitutes in a default if the search string is too long. http://adwords.google.com/support/aw/bin/answer.py?hl=en&answer=74992
Just to clarify, it does not use the search string but the keyword that triggered the ad. If I search for "round aluminum widget" and this search triggers on the keyword "aluminum widget", the DKI inserts: Aluminum Widget not Round Aluminum Widget Also note the capitalization used which depends on how you capitalize the word {keyword:} in your directive.