We've heard about this before, but now that it's up and running, this is probably worth a revisit. Apple's iAds system actually uses lots of your information, including your iTunes purchasing history, location data, and any other download or library information it can suss out about you, to determine what ads you see. So say a few marketing firms working with the large companies now buying and selling iAds.
A recent series of ads for soap was able to target "married men who are in their late 30s and have children." That's very specific, and when Apple rolls out the full program, it'll even be able to use things like iBooks purchases and iTunes movie and TV downloads to target you with advertising.
Is there anything wrong with that? Not really. Apple isn't running the only targeted advertising network, of course, and the whole problem with analytics firms like Flurry is that they were tracking and sharing this information anyway through third-party apps. Apple also isn't sharing your personal information; it's just connecting you with advertisers who want to speak with you, not actually telling those advertisers who you are. Apple knows what you've purchased in iTunes, but that information isn't necessarily communicated to Nissan or Best Buy.
If you're still worried about iAds, though, Apple does offer a way to opt-out of sharing your location or purchase information; you can go to https://oo.apple.com/ in your iOS 4 device's browser and register to opt-out of that kind of targeting. You will still see iAds, but Apple won't use your personal information to choose them for you.
iAds uses iTunes history, location information to target advertising
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