Banner ads work best for branding purposes. In my experience, click through rates are related to the quality of the banner design, the tagline and the type of audience of the site you advertise on (if you sell kettles and you advertise on a holiday site, you won't find much people in the right frame of mind to buy your product.)

Banner ads can be static GIF or JPEG or use Rich media to make them more interactive: Flash, Java and Shockwave are popular technologies to create interactive banners that are animated, or deliver audio and / or video content.

Whether you choose a static or interactive banner ad is reliant on the complexity of the message you are trying to deliver. Car advertisers that want to promote a new feature rich car will want to use a rich media banner, while car dealerships that want to promote a discount if you shop this month will be served well with a GIF or JPEG.

There are also various sizes and positions for banner ads. The full banner (480 x 60) is the most popular. The Internet Advertising Bureau (IAB) specifies eight different banner sizes, according to pixel dimensions:

Standard Internet Ad Sizes

468 x 60 Full banner

392 x 72 Full Banner/ Vertical Navigation Bar

234 x 60 Half Banner

125 x 125 Square Button

120 x 90 Button #1

120 x 60 Button #2

88 x 31 Micro Button

120 x 240 Vertical Banner

There are several reasons why you might want to run banner ads:

Branding: People see the ad, and even though they don't click on it, they do remember the brand and the core message. Over time, with enough exposure to the brand, a sense of trust sets in, because the brand has a 'known' face.
For branding, you'll want to look at the amount of page-views the ad has had, in other words, how many people have seen the ad. The most common way to sell banner ad space is cost per thousand impressions, or CPM

Click-throughs: people click on the ad and land on your website. Now you get a chance to sell them on a conversion.

CTR or Click-through rate: this is a metric that describes how many % of people that saw your ad (=number of page views) actually clicked on the ad (=click-through). Don't be disheartened if the click through rate is less than one percent, this is the norm. If you run an ad campaign with the objective of having people click on your ad, but you pay for the standard cost per 1000 page views, you'll want to know that you are atleast getting a click-through rate that makes it all worth it.

Cost per sale: How many sales did your banner advertising campaign generate (you'll know this because every click from a banner ad lands on a unique page with a unique identifier that tells you who bought a product as a result from the ad.) You'll need to make sure that your revenue from the advertising campaign is greater than your cost.

You can make your banner ads for free on one of these popular free banner design sites:

Make Your Banner.com
ABC Banners
Atomic Arts

You can use banner network like DoubleClick or Flycast, to post the banner on a number of publisher sites.

Alternatively, you can research which sites are already ranking well for the keywords you target and contact the publisher and negotiate an advertising deal, or create a relationship with non-competing sites that target your demographic and opt to exchange banners at no cost.

If you like the latter option, you could also look into banner exchange programs such as:

LinkExchange
BannerSwap
SmartClicks
Free Banners
LinkBuddies

Thank you 'Bring It On'

Some very useful info and links.