As mentioned (an update) in another post, it's not Adsense (my mistake) it's WordAds. It's new. WordPress has some links about it. WordAds are done on the back end, the user doesn't do anything, select the placement, it's all done by WordPress/WordAds.
It's not a widget, or anything to be "stripped out" -- it's the official ad program associated with WordPress. It's not only not banned, it's welcome. Here's some info.
To see a spot where WordAd spots appear: you'll see them below the top blog post, on the main page. And after that, on the individual blog post after the jump, on every post. Usually they're video ads. Like for a car, or pizza, etc. They're usually short, entertaining, and blend in pretty well.
In fact, they look the same as the ads that (WordPress hosted) WordPress automatically places on member sites. Joining WordAds enables a member (if their site meets the qualifications, self hosted, etc.) to collect the revenue, instead of WordPress. It's calculated monthly. And shows up in the settings tab, in Dashboard. The income is very, very modest. unless a site gets an enormous amount of traffic. But, they can help monetize a blog a little.
Affiliate links are low-key, indirect form of advertising. A reference, mentioned in the body of a blog messages, hyperlinked text. It's an acceptable form of advertising, if done according to WordPress's guidelines. It still counts. And also offers extremely modest revenue.
Soon I'll have earned enough to buy a couple pairs of socks, and a case of Pepsi.
WordAds is advertising, in the most clear, traditional, unambiguous sense of the word. They're like short TV spots.
Check out their FAQ, it's a fairly new program, started with WordPress only last year, I think. And my site added it only a few months ago, it's still new to me, too.