From the Victrian Bookmakers Association official website http://www.vicbookmakers.com.au/betting/betting.htm

TYPES OF BETTING

Win and Place or Each Way

An "Each Way" (Win and Place) Bookmaker accepts "Win Only" or "Each-Way" (Win and Place) bets.

If you bet $1 each way on Phar Lap at $9 (odds of 8 to 1) your investment is $2 ($1 for a win, $1 for a place).
If Phar Lap wins you collect $12. This represents $9 for your $1 win investment and also $3 for your $1 place investment (one quarter of the 8 to 1 win odds being 2 to 1 i.e. a $2 win plus your $1 investment).

If Phar Lap runs second or third you lose your win bet of $1 but collect your place bet of $1 for a total collect of $3.

Where there are less than eight runners in a race, the Bookmaker pays out only on first and second but the place odds are calculated at one third of the win odds.