When one downloads free-to-use apps, they will contend with ads that have been embedded within. These ads, mostly banners and the occasional take-over attempt, are notorious for outright spamming users. To address this issue, Google Play moved to attach notices on apps that contain ads.
The label is placed directly below the install button, giving it some level of prominence that informs users if the app has ads embedded within or not. This is to ensure users who want to download such apps will know for sure what they are getting into – ads and all.
Google introduced this initiative as a requirement for apps that are placed in the ‘Designed for Families’ programme and, from then on, has moved to rollout this requirement to all apps. In January of this year, all developers have to sign into the Play Developer Console and certify if their apps contain ads. Each time an update has been introduced, they have to go through the same reporting requirements. Those who do not comply or have submitted inaccurate reports will have their apps delisted.
All ad-types used within apps qualify for the label and regulated policy. That and everything else within the T&C can be seen in this support document.