Why does Quality score matters?

Three advertisers
Advertiser      CPC bid        Quality Score      Rank                    Position        CPC
A                   $0.40              1.8                    $0.4 X1.8 = 0.72        1              $0.37
B                   $0.65              1.0                    $0.65X1  = 0.65         2              $0.39
C                   $0.25              1.5                    $0.25 x 1.5 = 0.38      3             $0.01

As you can see Quality score is your reward for running an efficient campaign.

What google does it devide second advertiser rank by the Quality score of Advertiser A = 0.65/1.8 = $0.36. That's the amount advertiser A will spend to get the second position for this keyword. Google then add $0.01($0.37) to get to the first position for that keyword.

For advertiser B google will devide Advertiser C rank by their quality score = 0.38/1 = 0.38 that's the bid need to stay in the third place. To go to second place google then add 1 cent and hence CPC of $0.39.

Advertiser C is obviously last so their calculated CPC is zero since there is no more advertisers in this category. Google adds $0.01 to come up with a bid so their CPC is $0.01. 

Same scenario but let's assume that advertiser C now has a poor quality score of 0.5

Advertiser     CPC bid     Quality Score          Rank                   Position       CPC
A                 $0.40           1.8                         $0.4 X1.8 = 0.72        1            $0.37
B                 $0.65           1.0                         $0.65X1.0 = 0.65        2            $0.14
C                 $0.25           0.5                         $0.25X0.5 = 0.13        3            $0.20

As you can see CPC bid for advertiser B has dropped to ust $0.14 (0.13/1 = $0.14 + $0.01 = $0.14)  while monimum bid for C has been raised to $0.20 by google.