Google spiders the web continually and stores key data about sites on their servers. When someone searches, Google searches its own database (not the web) and presents you with search engine results pages (SERPs ). There are three elements on SERPs: 1) Paid pay per click (PPC) ads are on the right 2) local business listings with a map - very important for local businesses and 3) 10 organic results.
These three areas on the SERPS equate to the three methods businesses use to attract people to their sites: PPC advertising, local listings and search engine marketing.
PPC provides fast targeted traffic if you have the budget. You bid to be shown in the ad stack (as high as you can afford) when someone searches for a search term you value. If you are shown and a searcher clicks on your ad Google charges you for the click. The cost depends on the competition, the position of your ad, the value of a customer and a Google Quality score. Used properly PPC can track visitors and sales which lets you calculate ROI.
Local listings a.k.a. Google Places listings started appearing in the SERPs in early 2010. This is a free local business listing and can be optimized so that it appears at the top of the results. However Google is already modifying how and why these appear in the results.
Search Engine Marketing (SEM), the third and most important method focuses on getting into the 10 organic listings as 90% of all traffic comes from these organic results. PPC only accounts for ~5% because people simply do not trust them. SEM helps build your site into an asset by making it an authority site which Google sees as being most relevant for a range of search terms and attracts 'large' quantities of traffic. You build authority by giving Google what it wants: relevance and backlinks.
Relevance is the cornerstone of how Google makes money. Relevance keeps users coming back and while only 5% of those searchers click on the paid ads, 5% of the massive search numbers (e.g. 26B searches per month in the US alone) brought in $6B in worldwide net profit last year. Relevance means how well the site content matches the search terms searchers are using to search for your product or service e.g. if 'gourmet pizza' is a key search term for your business, you must include that in copy and meta-tags in a process known as 'on page optimization'. Without it, Google is unlikely to show your listing. Many businesses make the huge mistake of assuming they know what people are searching for. You MUST conduct keyword research to find out.
Optimizing the site content can lift you higher for key search terms e.g. I've had a business jump from page 3 to page 1 in 2 weeks but it will also depend on how broad and competitive that particular search term is. You can be found in the search engines without optimizing content but it's a lot harder.
Google also wants to see backlinks. Backlinks are links pointing to your site from other websites. Google sees them as 'votes of confidence' in your business. You can create them for your site on many types of sites: articles, blogs, directories, forums, video e.g. YouTube or Linked in. Backlinks may take a little longer to give their full effect but they also have longevity unlike PPC or any other form of ad. Adding backlinks overtime increases your authority which helps your SERPs ranking which leads to organic traffic, leads and sales.
By building an optimized site and creating backlinks steadily you can attract leads and customers into your funnel.