Exactly. It's not rocket science but if you don't have an iPhone, then it's easy to see how you don't understand.
At the moment, you get a free game and because it's free, they hope you'll buy the full version or something else, so there will be a link (in an awkward place so you keep pressing it) and it might take you to the AppStore or open Safari. Both of those things interrupt the game you're playing and are generally s**t. The ads look crap. So now with iAd, this means more games will be free. More developers will be attracted to the platform. At the moment it's very difficult for a game to be noticed.
Now the ads will look a look better, won't send you into other programs and will generally be a much better experience.