From the article:

"We are replacing our static per-keyword Quality Scores with a system that will evaluate an ad's quality each time it matches a search query. This way, AdWords will use the most accurate, specific, and up-to-date performance information when determining whether an ad should be displayed," Google said. Previously, Google used a static measurement of quality in assessing whether to display an advertiser's ad for a particular keyword.

So if it was previously static and will now be dynamic, then it's essentially algorithmic.

How will people know how to budget?

According to the article this is a change to the Search part of the system, not content. Here's the AdWords Blog post [adwords.blogspot.com] about it. There's no mention of the content network, only search.

The discussion is ongoing over here:
[webmasterworld.com...]