How Advertising Work on Facebook?

What is Facebook's philosophy on personal information and ads?

Facebook strive to create relevant and interesting advertisements for user and user friends.
Here're the facts about Facebook Ads:
Facebook Ads are sometimes paired with news about social actions (ex: liking a Page) that your friends have taken.
You just appear in Facebook Ads to your confirmed friends. If a photo is used, it is your profile photo and not from your photo albums.
Facebook sell your information to advertisers and advertisers can target users with ads that match.
Facebook enforces policies that help protect your experience with Applications by outside developers and ad networks.

How Advertising Work on Facebook?

How Facebook decides which ads to show on Facebook?

Facebook want the ads you see on Facebook to be as interesting and useful to you as possible. To decide which ads to show user, Facebook use:
Information you share on Facebook (ex: Groups you join, Pages you like)
Other information about you from your Facebook account (ex: your gender, your age, your location, the devices you use login to Facebook)
Information advertisers and our marketing partners share with us that they already have, like your email address
Your activity on websites and Facebook apps

You have several ways to control which ads we show you:
Adjust your ad preferences. Click or near the top right corner of any ad on Facebook, and select Why am I seeing this? You will see an explanation of why you’re seeing the ad, and you can choose to hide all ads from that advertiser. Select Manage your ad preferences to see more audiences you’re a part of that influence which ads you see on Facebook, and adjust which audiences you are a part of. You can also view and adjust your ad preferences.

Use interest based advertising controls. If you don’t want Facebook to use information based on your activity on websites or apps off Facebook for the purpose of showing you ads, you can opt out from your settings. You can opt out from all participating companies through the Digital Advertising Alliance in the United State, the Digital Advertising Alliance of Canada in Canada or the European Digital Advertising Alliance in Europe, or opt out using your mobile device settings.

If you don't want see any Facebook ads, you can block all ads on Facebook.