I was speaking with one of the most knowledgeable people I know in the call center and online advertising market. He has been spending tens of thousands of dollars advertising on Google. Recently he hired an analyst to go through where his clicks were coming from. They found a number of fraudulent "spam" sites sending traffic to them. These "spam" sites are optimized for certain keywords and trick users into clicking on ads that are disguised as something else.
He alerted Google and Google credited his company for some of these ads and he tells me that since this incident, the quality of his results have grown 30%. From this I surmise his click fraud was at least 30%.
I am currently an investor in Google btw but I always do my best to be objective regardless of company ownership.
It would seem that advertisers are blindly paying for ads and aren't aware of how big a problem click fraud actually is.