Adding ads to a free app or game is probably the most common way developers monetize. Ads certainly have their drawbacks, but when coupled with high downloads, they can bring in substantial revenue. Users are now conditioned to expect ads in free apps, so you shouldn't feel bad for including them.
Dejan walks you through how to efficiently integrate the Admobs platform in your apps. My advice is to spend some time brainstorming where the best ad placements are. Try to give your users a good experience while still keeping the ads on high traffic views.
Monetizing Your Apps: AdMob by Dejan Agostini