[ganeshkrishnan]

its usually from user behaviour and how the advertiser setup the keywords for the product. If users searching for "children's clothing" start having a high conversion for "NIKOLAI-brand kidswear" then more and more of their ads will start appearing when searching for children's clothing.

Google (and also the advertiser) have list of keywords that work well for products and then keep testing new keywords

[edmundsauto]

This actually makes sense to me - conversion is possibly the most clear signal that the query intent was answered. While there is a financial incentive for Google to make this happen, it also results in improved user experience - in the less cynical days I might call this a “win win”.