Click fraud is the bane of every pay per click advertiser. It is also a criminal offense.
Click fraud happens when someone repeatedly clicks on pay per click advertisements without any actual interest in the ad itself. Mostly this occurs when the site owner is trying to make a profit from clicking on their ads. They may even pay someone else to click on the ads for them or have a written request to anyone to click on the ads on their site.
Because the site owner gets paid someone anytime clicks on those ads, they are not allowed to click on any of the ad links that they will be compensated for. They are not allowed to ask anyone else to click on the ads either. The only time someone should click on an advertisement from a website is if they are genuinely interested in what that advertiser has to offer. You can be sure the business that receives a large PPC bill because of click fraud is going to file a complaint.
If someone is found to be fraudulently clicking on paid links, Google will ban them for life from ever using their services again, de-index the website, and that is that. There is no making it right with Google. They may also pursue legal action against you as it is against the law.
Google Adwords has a very complex detection system in place that tracks the IP addresses of anyone who clicks on an ad. If a website has an incredible amount of clicks from the same IP address, they consider it to be click fraud. Other Pay Per Click companies have similar systems in place.
There have also been incidences where a marketer my actively try to get their competitors suspended by repeatedly clicking on their ads to make it look like they are committing click fraud. This is very unwise because you may get your competitor suspended, but you will also find your IP address suspended as well since you are the actual person committing the act. Your competitor may be able to plead their case and be reinstated. You, however, will most likely find yourself banned for life.