Evolution of Entangled Targeting
For a long time Keywords were the only way to define the context where ads should appear. A lot of Keywords were required to match the context correctly. With time Google upgraded its algorithm to single keyword matches. Now, you don't require many keywords to define the context, even a single keyword is enough. Google soon rolled out Topics and Interest, categorization of webpages and audience, and from here things became complex.
Now, contexts are defined, by not only keywords but also Google's categorization of pages & audience, known as topics & interest. Just like early days of adwords when few people understood how to get around keyword targeting on display network, same was true with these new features too. Adding to the confusion were target and target & bid feature.
Google does a great job by graphically representing the targeting on the side, but not many are masters of set theory, so the explanations about them on web by many bloggers are full of goof ups. If you understand union & intersection concept of sets then it should not confuse you, for more accurate analysis of what is happening just look into the spheres on side. It gives pretty good insight.
So, there are three ways of contextual targeting, which is of most interest for you, which you can either keep separate or entangle them.
Pure vs Entangled Targeting
If you keep keyword, topics and interest in separate adgroups or campaigns, it would give you most wide coverage of each kind. If you add interest or topic or both with keyword then they become entangled and context and bid is defined by whether you have chosen, bid only or target and bid.
If you have keywords in your adgroup, then they are always target & bid and you can't make it bid only. Using keywords entangled with topics helps refine targeting, where each of them alone may expose your ads on irrelevant pages. If you set up both as target and bid, it will result in decrease in exposure but definite enhancement in CTR and conversion rate. you may choose according to your requirement and competition you are facing. when competition heats up refinements of targeting is must. Same can be said about interest targeting. You can keep them separate or entangle with keywords or topics. Google charges 20% of CPC for identifying interest target audience, so its a tricky affair.
Who are Interest audience & why you must watch them closely
I don't want to receive call from people who are Marked Interested in SEM by Google. Why??
They are people who are always searching for someone in the industry and for what you just guess. Same is true for many services. They are highly dissatisfied people. They are hard bargaining people. Worse, you will meet some cheats too who keep on changing service providers.I have got good result with interest categorization in diseases, homemaking, real estate and shopping goods targeting.
Before using it, you must try to answer why should one use his computer so much that google should mark him.