I attended a webinar on Google Conversion Optimizerrecently and had to write a summary for work that I thought I would share with everyone. I don't profess to be an expert (that's why I went) so if there are things I am missing let me know.
At it's core the conversion optimizer helps you bid more effectively on adwords. It takes all of the info that gets generated by an adwords campaign and analyzes it all to adjust your bids on keywords for situations that bring better conversions for you.
Regular adword campaigns allow you limit your campaigns by country, city, state or neighbourhood (though this IP detection is not always effective). Google Conversion Optimizer adds more to just that general segmentation. Over time conversion optimizer learns what regions, search strings... yeild better conversions for your site. As it learns what terms...have a higher conversion percentage on your site it adjust your average bids higher so that you come up more often for those things (note: you still set your maximum and it doesn't go over that figure).
The example given int he presentation dealt with a surf shop that advertised for 'surf board' and for 'ocean sports.' As one would think they saw lots of good ROI on the term surfboard and some ROI on the term ocean sports. When they turned conversion optimizer on they saw a big increase in 'ocean sports' as the tool learned what types of sites to display the add on and what exact queries meant people were really looking for a surf shop. This fairly broad search term ended up having a very high ROI as conversion optimizer learned more and more when to feed their add out (with little increase in average payment for adds).
As with anything that uses historical data to tailor results the bigger your data set the better the campaign is tailored. So over time you campaign could yeild more conversions for the same or lower pricing. Tieing in with this it was suggested that you just start a normal adwords campaign and after a number of weeks (no firm number mentioned) turn on the conversion optimizer.
You also can't make large changes to your campaign and have the conversion optimizer maintain its effectiveness. You can add a few keywords and maybe take one or two out but when using conversion optimizer it is best to make changes slowly over time so that it stays effective. If you have to make large changes for a campaign it is best to turn off conversion optimizer make the changes let it run for a few weeks and then turn it back on.
Finally conversion optimizer requires that in the last 30 days you have had 30 conversions and that you have conversion tracking turned on. Now if your campaign regularly has 30 conversions in 30 days but for a period or two it drops to 24 (the number mentioned in the presentation) you should still be using conversion optimizer. It will still have a large data set from the other recent 30 day periods to act on.