The term "Quality Score" is used in different ways, with different meanings.
The one that most people think about (and worry about) is Quality Score for keywords.
Though even that has two different meanings:
1) Keyword Quality Score
This is the quality of the keyword, independent of landing page and "landing site".
It's what is used to determine ad position (for the keyword).
2) Keyword Bid Quality Score
Similar to above, but taking into account landing page and site.
It is used to determine minimum bid.
This is the Quality Score that you need to focus on to defeat "The Google Slap"
Quality Score and Ad Position
As mentioned above, it is really "Keyword Quality Score" that affects ad position.
Your "Ad Rank" is determined by Keyword Quality Score multiplied by your bid (aka "Max CPC").
If you're new to Adwords, you may think "big deal".
But it really is a big deal, since that means the better your quality score, the more bang for your adwords buck you get!
If you find a way to double your quality score, that means you could get 1 of 2 things:
Higher position for your money (if you leave your bid the same)
or
Pay half what you were paying (on average) to stay at the given position (if you cut your bid in half)
Of course you can do a compromise, paying less and getting higher position.
And it's not just about cutting costs per-se.
By improving quality, you might move a keyword from breaking even (or even losing money) into one that's now profitable. A lot of people will keep an unprofitable keyword going in the hopes of things turning around (such as experimenting with things that improve conversion). But you can also improve the keyword quality and get it profitable independent of everything else.
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