Can you earn money from ads?
No blogger initiated advertising, retailing or reselling the work created or services provided by anyone other than yourself is allowed on free hosted WordPress.COM blogs. E-commerce transactions via shopping carts and the like cannot be conducted on free blogs from and being free hosted by WordPress.COM
Those who do have well established blogs that have suitable content and secure over 20,000 views monthly or more, may apply to get into the WordAds program which will replace the Ad Control program.
Those who have for extremely high traffic blogs (example: CNN) that qualify can apply for acceptance into the paid VIP hosting program. http://vip.wordpress.com/
If you hire a web host and set up your own WordPress.org install for self hosting you can initiate your own advertising on it. For self-hosting figure an average monthly total cost (including cost of a domain name) of about $10 to $25 generally, but that all depends on storage and bandwidth requirements. Most bloggers I know that take this route to make money via advertising do not make much over and above their hosting and domain registration costs. Also note that literally millions of people are downloading and installing Adblock plus on their Firefox browsers each month, fewer and fewer people are seeing ads.
Wordpress.com vs WordPress.org: The Differences