What keywords should I use for my website?

For this question I will use for example this blog so you can learn by example: http://klitschkoblog.blogspot.com/

This blog is on the heavyweight boxers Wladimir and Vitali Klitschko. It's not a site/blog that would make a great candidate for Adwords necessarily since I created it more out of fun than anything else, but in the instance I did want Adwords for it and for purposes of this discussion lets pretend I did.

Keywords that relate to this blog would be for example:

klitschko
wladimir klitschko
vitali klitschko
heavyweight boxing klitschko
heavyweight boxer klitscho
heavyweight boxing wladimir klitschko
heavyweight boxer wladimir klitscho
heavyweight boxing vitali klitschko
heavyweight boxer vitali klitscho
wbo heavyweight champ * Wladimir has the wbo belt
wbo heavyweight champion
ibf heavyweight champ * Wladimir has the ibf belt
ibf heavyweight champion
ibo heavyweight champion * Wladimir has the ibo belt
ibo heavyweight champ
former wbc heavyweight champ * Vitali was the wbc champ
former wbc heavyweight champion

More general keywords would include:

heavyweight boxing
heavyweight boxers
boxing
boxers
pro boxers
professional boxers
pro heavyweight boxers
professional heavyweight boxers

We can also use keyword misspellings for those who may spell the word wrong in Google Search:

klichko
klitchko
vladimir klitschko
vladimir klichko
vladimir klitchko
wladimir klichko
wladimir klitchko
vitali klichko
vitali klitchko
etc...
and possibly continue with the more general keywords as well:
bocing
heavuweight boxing
etc...
I'll have more information on misspellings and their uses in another post.

The more specific the keyword towards your site, the more people will click your ad who actually want what your site has to offer, and for the most part, the less you'll have to pay for that keyword. In other words the keyword 'Wladimir Klitschko' is going to be less expensive to bid on than the keyword 'boxing' in Google. Even though more people may click on the ad for the keyword 'boxing' for the simple fact that more people may type it in than another keyword such as 'Wladimir Klitschko', the keyword Wladimir Klitshcko will get more visitors who actually want what your site has to offer. For all purposes of advertising, that's exactly what you want. Another way of saying the above is that 'Wladimir Kiltschko' will have a higher Click Thru Rate (CTR) than 'boxing'.

Google smiles upon good CTR's. The higher your CTR the more Google realizes that keywords is more specific and tailored for your ad and therefore rewards you with a higher position. You can sometimes get a higher position in search just by having a higher CTR than someone who may be paying more for the same keyword/s! This is what makes Google Adwords great. If you make a great ad and have great keywords associated with that ad you will be rewarded over someone who may have a bad ad and keywords but is paying more for their keywords.