Using the Google Adwords & Google Adsense program, advertisers can choose to advertise on Google Mail, a.k.a. Gmail.
The ads appear on top, on the side and bottom of the inbox. Ad targeting in Gmail is fully automated.

This is well and great but Google Mail ads are not so accurate in terms of audience targeting, territory targeting, etc... Who clicks on them? How can you optimise Gmail ads?

Well Google has released a message that we shall get soon 'better ads in Gmail' improving on the ad relevancy, applying the 'Gmail ad's importance' and offering coupons to local areas.

Gmail announces, "Gmail will better predict which ads may be useful to you. For example, if you’ve recently received a lot of messages about photography or cameras, a deal from a local camera store might be interesting. On the other hand if you’ve reported these messages as spam, you probably don’t want to see that deal.