The code assigns weight based on things like traffic and Google PageRank, you can also get weight from referring people. The higher your weight the more often your ad will be shown. Also, unlike a standard link exchange, the site you put the links on does not have to be the same site you promote with your links. This is an ingenious idea and does make the network more useful than had it been a standard exchange.
We all have our own limits and definitions of what is black hat and what isn’t, and this is one of those things where you’ll have to decide for yourself. I personally would not run this on any site where a Google ban would seriously hurt me. However, Google has been erratic lately, some sites simply do not rank well no matter what you do. In these cases you might as well join the ad network as it’s not like it’ll hurt you in Google and ad network sites do quite well in Yahoo and Bing.
Due to all of the above, my advice is to use this network at your own risk. I’ve seen some amazing results produced with this ad network, but in many ways it reeks of spam, so you will have to decide if a Google ban is worth the risk.