What Are In-App Purchases?
In-app purchases are purchases made from within a mobile application. Users typically make an in-app purchase in order to access special content or features in an app such as power-ups, restricted levels, virtual money, special characters, boosts, etc. The purchasing process is completed directly from within the app and is seamless to the user in most cases, with the mobile platform provider facilitating the purchase and taking a share of the money spent (usually in the range of 30% or so), with the rest going to the app developer.
In the case of Clash of Clans, the only available in-app purchases are various quantities of green Gems, the premium currency within the game. Clash of Clans is free to download, but has an option for players to purchase Gems with real-world currency. This type of game is called a 'Freemium' game, as defined by the fact that the game is free to play, but premium items or content are also offered for purchase ('Freemium' being a portmanteau of 'Free' and 'Premium'). As it turns out, lots of people use real money playing Clash of Clans, as it is one of the top-grossing games on the Apple App Store.
Is It a Good Idea?
Many people use Gems to buy resources or finish upgrades. People who buy large quantities Gems and use them on upgrades (especially the Town Hall) are referred to as "gemmers" or "gem buyers". However, only upgrading the Town Hall isn't a good idea. "Gemming" your Town Hall will mean that you have less time and resources to upgrade the other buildings at each Town Hall level. Unless you continue "gemming" the buildings, it will come to a point where your resources will be extremely limited (collectors and mines are too low-level and raiding is not effective due to the loot penalty), causing the "gemmer" to be unable to upgrade the other buildings and forcing them to either continue "gemming" or give up the game. The latter would be considered quite a waste, so "gemmers" would most likely continue gemming their troop levels, buildings and resources.
However, when using gems 'correctly', buying gems can really speed up your progress in the game by a huge lot! For example, not using the gems for the sole reason to upgrade your town hall to level 11, leaving the defenses at an extremely low level, but use gems to speed up troop training, allowing rapid attacks and rapid raiding of resources. Another way is to (if you are an impatient person), use it to speed up long building upgrades.
Some people buy Gems for the sole reason of building the third, fourth or fifth Builder's Huts (quite often the third). However, upon achieving 1,250 Trophies the player is awarded 450 Gems, which is by itself nearly enough to buy the third Builder's Hut. See Achievements for more information about in-game Gem rewards.
How Much Do Top Players Buy?
Most high level players (e.g. Jorge Yao, Kemal, Clayton) are generally assumed to spend thousands of dollars on Gems. In his YouTube interview with Flammy on 26 Jan 2013, Jorge Yao admitted to spending roughly US$200-US$250 per week on Gems to reach his goal of 4,000 Trophies, and on his Facebook page on 16 June 2013, he had this to say when asked how much he spent per month: