The fundamental difference between AdWords and AdSense is who they’re designed for. AdWords is for advertisers and AdSense is for publishers, or website owners.
AdWords enables businesses and marketers to advertise on Google’s network (search, display, etc).
AdSense enables publishers to reserve space for AdWords placements on their website (text, video, images).
Both AdWords and AdSense work together to complete Google’s greater advertising network: website owners put up space for Google’s ads (AdSense) and businesses set budgets and ads to display on Google’s advertising network (AdWords).