A very interesting subject, keyword research.
First of all, the name isn't right. It's really "search term research", because most companies aren't going to be optimizing for a one word search term. It's phrases that are valuable - mostly two and three word phrases, some longer ones. But single words are usually way too general. Like "vacations" when you are renting beachfront condos in Panama City Florida.
Then there are three big factors that determine whether you should be trying to rank for a term:
The more relevant the search term, the better. In the above example, "beachfront condo rentals Panama City" is highly relevant. Almost anyone searching for that is looking to rent a condo on the water in Panama City.
But a highly relevant term may get hardly any searches. In the above example, a lot of searchers are going to leave "rentals" out of their searches, because people are going to use the shortest search phrase they think will work.
It is a VERY common situation that you are going to get more juice from a somewhat more general term like this.
But there's a third huge factor. How tough is the battle going to be to rank for a term? The best terms may be completely out of your reach because page one of Google is dominated by websites with whole teams of staff working full-time on optimizing the site.
So you have to be able to assess and decide what battles to fight. This is what we like to call the "sweet spot" - the term or terms that are going to get you the most valuable traffic because of the search volume, relevance, plus a competitiveness you can AFFORD to take on.
Sorting this out is part art, part science. This is one reason why SEO is a marathon, not a sprint. There's a lot you learn over time about your business's Internet Marketing environment - things you'd never be able to guess.
Keyword Research is always such a process.