It's really easy to accidentally click on ads when using your phone to browse the Web. Many of us are spoiled by the ad-free browsing we experience on our desktop computers, and wish we could experience the same on our rooted Android phones that have less screen real estate to work with. The solution is simple, AdFree, an app by BigTinCan, offers the ability to block out all ads--if it's the right option for you.
Note: This particular application requires that you have a rooted Android phone. Even though you will still be able to install the app without any issue, the lack of Superuser will prevent the app from functioning.
Step 1: Grab AdFree from the Android Market.
Step 2: Open the app and click on "Allow" if a Superuser request pops up.
Step 3: Run the in-app updater. This is the top button labeled "Download & Install Hosts."
Step 4: Choose the updating schedule that best fits your needs. Checking for daily updates does create more traffic for the company making the app, but if you're a heavy Web user on your phone, this option is recommended.
Step 5: Enjoy ad-free web-browsing.
You might notice that some sites will address the fact that you have blocked their ads. Unfortunately there is no white-listing option (allowing certain sites to display ads) present, but maybe in the future this app or another will include it. More information on the app can be found here: xda-developers: Block ads on your Android device.
Keep in mind that a lot of sites are partially or fully funded by their advertisements, so it's up to you to decide if blocking them is the best choice. You can read Matt Asay's take on the issue here.