Hi Divya, I suppose most of the people would want to know about the same. In Pay per Click or PPC model, you are supposed to pay Google on the basis of current scenario to have them list ads for your site at the top and right of the organic search listing. Suppose someone clicks on your add, then you will have to pay the current Cost per Click or CPC from your budget.
For the second part of your question...The budget varies depending upon the resources available and the profit margins. You need to review your performance and increase the budget accordingly. Remember, if you see results then increase the investment on PPC. However, you can calculate the budget by the following method:
(Desired clicks * suggested budget), accounting for Quality score, competitiveness of the keywords and whether your PPC goals are set for acquisition, clicks, branding, etc.
I hope this solves your query.