Your Ad Rank is a score that’s based on your bid, auction-time measurements of expected CTR, ad relevance, landing page experience, and the expected impact of extensions and other ad formats.
The higher the quality of your ads, the better you will rank and as a result, your CPCs can be lower.
The ad position you win in the auction is determined by your Ad Rank.
Ad rank is decided according to three very important factors, called quality components:
Your ad’s expected CTR – this is partly based on your ad’s historical clicks and impressions and adjusts for factors like ad position, extensions and other formats that may have affected the previously clicked ad’s visibility
Your ad’s relevance to the search
The quality of your landing pages
Source: About ad position and ad rank