We have talked about the topic of dynamic keyword insertion plenty of times here. Basically, if you bid on hundreds of keywords, creating an ad that contained each keyword phrase you are bidding on, can take a long time. That is where dynamic keyword insertion comes into play. You tell the ad network to replace a parameter in your ad, normally [keyword], with the user's search query, if your ad comes up.
A recent thread at WebmasterWorld asks if the same works for adding dynamic keywords to the URL string. So for example, if I wanted my ad to read;
Buy Blue Widgets The best blue widgets in the forests of Europe. www.smurfs.com/blue-widgets/
Now the keyword phrase above is "blue widgets" and we appended it to the title, the description and the end of the URL. That technically should help draw a searchers eye toward the ad, and increase the changes of them clicking on your ad.
It appears that adding dynamic keyword insertion techniques to the display URL of your ads in Google has been around since about September 14, 2004. BakedJake posted a thread back then, based on nuclei's findings, and then it appeared to only be limited test.
The question in the new thread is, does the display URL actually have to work?
Honestly, I do not think so, I think as long as the destination URL works, it is fine, but I can be wrong. It is obviously important to make sure your display URLs work and with a little mod_rewrite and fancy database coding, you can easily make those URLs work. But if not, will Google allow it?
Forum discussion at WebmasterWorld.