From what I understand, this means that they want to use your pictures (e.g. your profile picture) in conjunction with ads to - for example - say 'Hey Julian loves ChokkyNutz why don't you try them?'. Actually I guess they wouldn't be allowed to say that, but in any case they clearly want to make their ads more appealing by using pictures of you. An example of this being misused by a third-party application was when a man saw his wife's picture used by a dating site
Being Americans, I'm surprised they didn't try to make zillions by instigating a law suit, but the story sped around the web, and Facebook responded, basically saying it wasn't their fault and the picture shouldn't have been used in that way.
Anyway - the best thing to do is to stop them by changing your settings in Facebook: Settings > Privacy > News Feed and Wall > Facebook Ads > Drop box: select 'No One' > Save changes.
While you're at it, have a look at some of the other Privacy settings. What do you want people who search for you (and this includes spammers and identity thieves) to see (Privacy > Search)?
And how about this one (Privacy > Applications > Settings)?
"Facebook Beacon is a way for you to bring actions you take online into Facebook. Beacon works by allowing affiliate websites to send stories about actions you take to Facebook… If you click "No, Thanks", no stories or information will be published anywhere on Facebook. Any information that was sent to Facebook's servers will be deleted…
[if you don't click 'No thanks'] The next time you visit your home page, you'll see a message remind you that this story is being sent. There are three things you can do with this story: approve the story by clicking Okay, remove the story by clicking "Remove", or ignore the entire message by doing nothing." (How does Beacon work?)
Basically - have fun with Facebook, but don't forget that it's there to make money off you, not to help you make friends.
You can also check out a previous related post too - Facebook owns YOU!