You just put it in the ad somewhere. Dynamic keywords tend to increase CTR, because using them is basically feeding back search keywords to a person who searched for them. Here's a Google tutorial: adwords.google.com/support/aw/bin/answer.py?hl=en&answer=74996
Yes that true but many times there are click through's you don necessarily want because its not targeted enough to convert to a sale. So you need to be careful.
Hi ! Here is my answer : The syntaxt for Google AdWords Dynamic Keyword Insertion is {keyword: } When you create the AdWords creative place {keyword: } in the first line and then fill out the rest of the creative like normal. Automatically your title will match the search terms which will improve click through rates. Please note that Google does not want this feature used on search terms which are misspelled or otherwise break their ad policies. Hope this helps ! Good luck