Ok for adwords there are 5 basic things you should be looking at:
1) keyword choice - use the google built in tool to expand your words list, overture's keyword tool, or wordtracker.com are all good sources. Yes you are right that more specific words will help you out.
2) bidding price - you need to bid enough to get the exposure/impressions on the 1st page. Maybe you don't have to go for #1 but do it for at least the first 3 days to see if your words are any good.
3) Ad copy - you need to write good convincing adcopy to get your conversions / click through rate. You google to test your ads (write at least 3 versions / adgroup) - they automatically rotate the ads and optimze serving. Overture sucks for this because they have a 3 day editorial lag time.
4) Landing page - You can have the best words, the best clickthroughrate, at the lowest bid price but if your landing page looks like crap you've accomplished nothing. Use some type of tracking tool to see your abandonment rate on the landing page. Just like the adcopy, you're going to have to test 2-3 versions of landing pages to get it right.
5) overall quality / perception of your website. Just like #4, if your website is amateurish and doesn't evoke a professional, honest business, etc. Who's going to want to stay. You have less than 3 seconds to convince your web visitor that they've found the right place, otherwise you just wasted a lot of money in PPC! Go on forums to learn about usability.
Hope this helps. I work with PPC all day long and I'll be writing a long article about these pointers above soon. msg me if you have more questions!