RPM (Revenue per thousand impressions) is the estimated earnings for each 1000 impression that your ads acquire. It is calculated by dividing your estimated earnings with the number of page views.
The formula used to calculate the RPM of your website is shown below:
RPM = (Estimated earnings / Number of page views) * 1000
Your RPM has nothing to do with actual earnings. A higher RPM will not necessarily influence your earnings positively, it is merely an estimate of how much you earn per thousand visitor.
When can it be useful to know your RPM?
If you look at the Page RPM of the individual days in your Adsense reports, then you will notice that it is often very high compared to your actual earnings of the day, so it may not be very useful in this case, unless you have thousands of visitors per day. The metric is generally more useful for sites with the adequate number of visitors. This does not necessarily mean that it is not useful, however.
At the bottom of your reports, you will notice the RPM of all the days in the given time period. For those who do not get thousands of visitors per day, this value will often be more useful than the RPM of the individual days. If you have thousands of visitors per month, then you can use this value to somewhat estimate how much you will earn per day, if you manage to get to 1000 visitors per day.
How to improve your RPM
There are ways to improve your RPM, but it is rather pointless. Rather then trying to improve just one metric in your reports, you may want to focus on improving your overall performance and site quality.
The RPM of your site can sometimes be improved by changing the position of your ad units. However, if you do not already have thousands of visitors per month, then this might not be the best area to focus on – this is assuming that you already have a good overall site structure and layout, and that the ads are not getting in the way of your users.