It might be a simple question but for me its not, Im wondering how they make money? Can u please throw some light on this issue? I also tried to find it by of course googling, got some answers but not the exact point. Please share your knowledge.

Thanks:-)

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This is what I know --(after googling)
Google "gives away" a great search engine, among other features. That's great. But how do they pay for it? What is Google's business model?

In a nutshell: advertising revenue. Both on Google's site and on other sites.

Google is a major player in the online advertising industry. Every time you search Google, you'll see ads displayed along with your results. Those ads are never "mixed in" with the results - there is no "pay to play" on Google... which is one of the reasons Google became the most popular search engine in the first place. But the sponsored text-link ads above and to the right of the results generate a great deal of money for Google. These ads are known as "Google Adwords." Those who wish to advertise via Google can learn more on Google's Adwords page.

In addition, you may have noticed columns or boxes containing similar text-link ads on other websites - such as this one - which say "Ads by Google" at the top. Google already had a powerful system for selling and displaying ads in association with their own search engine. From there, it wasn't much of a jump to start displaying ads on other websites. Webmasters of popular sites with interesting content can sign up on Google's Adsense page and begin displaying Google ads to their users. Google pays the webmaster a portion of the advertising revenue and keeps the rest. This service is called "Google Adsense."

yeah what you posted google makes money from ads. most of the webistes have ads from google in it these days

Google really makes a lot of money out of absolutely nothing they own. That is total genius.
Other players like yahoo have tons of their own content but fail to compete with google who
own absolutely nothing apart from a huge collection of hyper links.
  Google makes 2/3rds of revenue from search results. You know whenever you do a google search
you can see a result on the top that is highlighted and probably quite relevant as well. If somebody clicks on that link the money goes to google, the revenue varies from a fraction of a cent to $30 per click.
 Second is as you mentioned Adsense. To use adsense all you need to do is register your website to
google and google gives you few lines of code which you can paste in your web pages where you want google ads to appear. If someone clicks on the ads on your website google will give a fraction of revenue to you and keep the rest, hence they earn money without absolutely doing anything. Well it benefits the content owener as well, as reportedly some bloggers have earned millions of $$ this way.

Google earns in cents. Thats why people find it hard to believe Advertising could make such a huge industry.
They also do custom search for huge companies. They have multi-million contracts with companies like CNN, ebay, amazontartups and midsize web companies have their destiny held in google's hand. A significant amount of ebay customers come through google. Even yahoo does advertising though google's adwords. Its hard to believe, buy it worked out for them coz almost every company in USA pay a couple of hundred dollars to google for advertising. Besides they also have  Adsense which you can see in every websites. But this is just 60 % of their business. They have evolving into other zones too. They are moving towards Video advertising on google video and youtube. They are working on Vertical search, and targeted search advertising through internationalization and localization..

I seriously think that this formula will slowly start showing its limitation by the end of 2009. Sites like digg which have lots of traffic still are unable to generate money in the same ration because most of the people who visit digg are techies. Once people become aware of adwords, nobody clicks them unless it very well targetted and personalized.

but, you know I have to admit. I have never clicked any of those google ads. Have you ? Just curious if people actually click on those ads. People must otherwise google woouldn't be making sh_t load of money. Afterall, customers have to click those links for google to get paid. But, again I have never clicked in any of those ads. Have you?

@gyaani_keta not all the users (read atleast 60%) are as smart as you.