The Google AdWords blog has published some tips on optimising keywords for their 3rd-party content network - where the PPC ads appear on other websites, dependent on the textual theme of a page matching the search terms that an advertiser might be targeting.

The articles confirms that content targeting operates at the AdGroup level, not at the keyword level, so that all the keywords in an AdGroup, along with the advert text, are evaluated by Google when deciding whether to show an advert on a specific content page. This means that it's important for all the keywords in an ad group to belong to a common theme and Google also recommends keeping campaigns separate for advertising on content and search.

The tips that relate to contextual targeting include creating a manageable, targeted keyword list; using tightly themed AdGroups; using duplicate keywords for appropriate AdGroups; using ad group level URLs instead of keyword level URLs; measuring content performance at the AdGroup level; and building a comprehensive negative keyword list. More information and explanation of these points are contained within the article.