Google adwords powered by google is the one shows the the keyword competition providing the most possible keyword that will gives searches. However it does not guarantee that keywords improve the site campaign performance. It only reserve the right and most appropriate for your site.
In the last webmaster webinar i attended at google they said that they consider more than 400+ factors while giving ranks and they didn't disclose all those factors (obviously can't right, else everyone will spam). But the best thing they revealed is that they asked all the webmasters to follow W3C validation for websites very strictly as most of the websites all over the world don't follow those rules
There are some ranking signal. Keyword density of page Keyword in Title Tag Keyword in Meta Description (Not Meta Keywords) Keyword in KW in header tags (H1, H2 etc) Keyword in body text Freshness of Content
For keyword ranking Google considers website optimization(means SEO friendliness of website) and number of quality back links. Google considers only quality back links, so it is important to build quality back links.