When the browser tries to load an ad, let's say from "ads.com", the DNS service responds to that domain with 0.0.0.0, which prevents the ad from loading. You enable lists to customize which domains should be considered ad domains and can optionally blacklist other domains.

Are any ad networks bypassing this yet by serving ads from a static IP?

IP lookups for known ad-serving domains are instead given a bad response or an IP of a (local) address showing a block page / no response.