What is ad tracking

If your iPad is online and you tap the Learn More link at the bottom of the Settings > General > About > Advertising screen when the setting is then it tells you a little bit about what it is i.e.

iOS 6 introduces the Advertising Identifier, a non-permanent, non-personal device identifier that apps will use to give you more control over advertisers' ability to use tracking methods. If you choose to limit ad tracking, apps are not permitted to use the Advertising Identifier to serve you targeted methods. In the future, all apps will be required to use the Advertising Identifier. However, until then you may still receive targeted ads.

I have the Limit 'on'

There is also a separate setting : Settings > Privacy > Location Services > Location-Based iAds 'off'