The new variation of the Kindle is called the Kindle with Special Offers. For now, I see only the Wi-Fi model on the Amazon site, which is open for pre-order. The price is $114, which is $25 less than the price without the adverts.
The launch partners for advertisements for now are Buick, Olay and Chase. The ads appear at the bottom of the Home screen and on the sleep screensaver (pictured above). They won't interrupt your reading. Why will Amazon do that?
Users will be able to choose the kind of ads they will like to see on their device through the Manage Your Kindle page on the Amazon site.
They have also created a free app and website called AdMash (yes, the name probably comes from Mark Zuckerberg's Harvard FaceMash), which is coming soon. It will give the user two ads to compare side by side and pick the one they prefer. Thus, the Kindle will display better ads based on their votes.
For more info, visit Amazon. Engadget has a press release.