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There are two entities related to WordPress: WordPress.com and WordPress.org (which was recently formalized as a foundation).
Most people don't know that the millions (see timeline charts) of free blogs on Wordpress.com are funded partially by ads, since only a few ads are used throughout the many blogs.
The WordPress advertising policy: "To support the service (and keep free features free), we also sometimes run advertisements. If you would like to completely eliminate ads from appearing on your blog, we offer the No-Ads Upgrade."
The WordPress "Features You’ll Love" page: "Advertising. To support the service we may occasionally show Google text ads on your blog, however we do this very rarely. You can remove ads from your blog for a low yearly fee. In the future you’ll be able to show your own ads and make money from your blog."
Matt (Wordpress.com staff) explains their ad use that started in August 2006: