They are "mostly harmless", except:
- they take up screen real estate and cause visual distractions (they are somewhat animated);
- they cause additional traffic and gps load, thereby draining battery (a little, but still);
- most annoyingly, they require apps to request "location+network" access rights, causing these to be more and more common, which in turn numbs the users' critical sense. That is a Bad Thing on a rather fundamental level.
The OS is not "specifically built to cater for" ads per se (that's a very odd idea) - but the connected nature of the OS certainly does enable them to be delivered.
On the up side, they make apps free that wouldn't otherwise be. For a lot of us without paid Market access, that's a real boon. That's why I think it dishonest to try to block ads (you should accept the whole deal, or choose something else).