Parameters are: Client Id
format, channel,url for the caller webpage, background color, link color, border color, text color, javasupport, flash support etc
The width and height of the iframe is calculated from googleadwidth = 468 and googleadheight = 60 parameters.
This is not the end of the story. The actual story just begins now. The loading iframe contains all the advetisement according to your adsense configuration. If you check the links of add unit, you can see all the event with the link is tracked by google adsense code.
See a sample ad link:
Free PHP Code & Scripts
See onmouseover, onfocus, onmouseout etc functions are used. It means google studies user behaviour with google ads. The click on the link does not go directly into the corresponding website, instead it redirected inot googlesyndication.com and from then redirected into real website. You can guess the reason.
Depending on your browser configuration, google shows text ads, image ads and flash (shock wave) ads
This is a very small introduction of hows adsense works. There are a lot of steps behind the show_ad.js file. But this is will give you a rough idea.