According to Google: "The AdWords system calculates a 'Quality Score' for each of your keywords. It looks at a variety of factors to measure how relevant your keyword is to your ad text and to a user's search query. A keyword's Quality Score updates frequently and is closely related to its performance. In general, a high Quality Score means that your keyword will trigger ads in a higher position and at a lower cost-per-click (CPC)."

Not only Google creates the AdWords Quality Score, but also other search engines have their own standards to measure the quality of ad sites, such as Yahoo Panama's Quality Index, and MSN adCenter Rank Model, which are similar to Google AdWords Quality Score.

Quality Score can be considered as the balance between user experience and economic interest of search engines. That is to say, search engines should guarantee the ads are useful to the users although advertisers paid for their ads.
For example, if the Quality Score of your site A is 50, while the site of your competitor's Quality Score is 100, in order to get the same ranking, you should pay more on CPC than your competitor. 

Therefore, a high Quality Score means you can lower your PPC cost on the basis of the equality of landing page and conversion rate, which is significant in SEM. In general, the higher your Quality Score, the lower your costs and the better your ad position.