In short: Xiaomi has admitted that they are putting ads on MIUI on its smartphones - not Android One smartphones, though. A Xiaomi spokesperson responded to this issue, stating that "Advertising has been and will continue to be an integral part of Xiaomi's Internet services, a key component of the company's business model." The spokesperson goes on to say that the company still wants to uphold "user experience by offering options to turn off the ads and by constantly improving our approach towards advertising, including adjusting where and when ads appear." Xiaomi believes that ads should be unobtrusive, and that users should always be able to receive fewer recommendations if they wish.
Background: Over the weekend, a couple of threads appeared on Reddit, talking about seeing ads in different parts of MIUI, particularly the settings app on the device. Which resulted in Xiaomi getting unwanted attention for its smartphones. It's not surprising to see Xiaomi placing ads in MIUI, seeing as its smartphones sell for such a low price, and they are making less than five-percent profit on each smartphone that is sold. So the company needs to make money somewhere, and that's where ads come into play. Xiaomi isn't placing obtrusive ads in its operating system though, they are mostly only appearing in the settings app. So it's not like you are going to be seeing pop-up ads when you are taking a photo in the camera app or something like that. But Xiaomi also gives its users the option to disable these ads if they wish.
Impact: This appears to be a newer "feature" for Xiaomi smartphones, seeing as we have not seen ads on any of the smartphones we have reviewed from Xiaomi in recent memory (including the Poco F1 that we just reviewed this past week). But the fact that users are able to disable these ads is definitely a good thing, and may keep users from completely being put off by Xiaomi.