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The "R" is the number of websites found with that keyword provided by the results of a search engine (the supply), and the "S" is the number of searches on that keyword (the demand).
Here's an article about it:
R/S Ratio
R/S Ratios I believe are only used for natural searches. Not for Pay Per Click. It's also going to very per Search Engine.
The problem I see with them is if you are ignoring keywords or niches with high ratios you are missing potentially profitable markets.
The number of websites reported as "the supply" are in my opinion meaningless. If 2 million sites have your keyword, that doesn't mean your competing against 2 million sites. Most of the websites have nothing to do with your target market.
There is no way to determine which sites are your actual competitors.
I'm not saying that it doesn't have it's uses. It can give you a feel for your market, but like many tools it should only be used as a guideline. You need to use it in combination with more research.
Sometimes the only way to know is to TEST.