Log in to your WordPress account.

Select Plugins from the menu on the left.

Select Add New (plugin).

You can search or upload. If you've already downloaded a program, Upload it.
Otherwise:

Search for a plugin. I'm using Advertising Manager, which seems to work fine.

Once installed, activate the plugin.

A new "Ads" option is available in the menu. Select it.



This screen should appear:



From here, you'll need to access your Google AdSense account and generate a code.

Once you have the code, return to the textfield, paste the code, and click Import.

The next page allows you to customize your ad.

The Account ID and Slot ID boxes should be pre-filled (from the code). Those are fine.

I leave Partner ID and Max Ads Per Page blank.

The rest is up to you. Adjust your Format-size to your liking.

Login to your Google AdSense account to see your reports.

Disclaimer:
Some WordPress themes either don't support ads, or have different-means of inserting them. I'm using Twenty-Ten 1.1 by WordPress team, which works great.