At Admin Panel -> Settings -> Switches there's an "advertisements system" option. When this is turned on, Admin Panel -> Revenue -> Ad Manager will allow you to set up advertising for your site. You can set any number of advertising slots and paste display code for one or more ads in each slot. The display code can be any html/javascript, such as google adwords, other ad network code, or custom ads. If you have more than one ad in a slot, you can choose what percentage of the time each ad should show up. The ad manager will keep track of impressions and click through rates.

To display an ad slot, just put {SHOWAD[1]} (where 1 is the slot number) in the template where you want it shown. You can place ad slots anywhere in any template. In the default theme ad slot #1 is in the wrapper (Admin -> Themes -> Manage Templates -> Wrapper) places so that it shows up in the upper right of every page.

You will of course want to be careful to make sure that all ads you put in the same slot are the same size so that they don't alter your layout.