Targeted advertising usually results in a higher click rate for the ads that the app displays, and thus more income to the developers of said app. Targeted ads use insights about you collected from your information online and your browsing behavior tracked with analytics to display advertisements more personalized to “you”, or rather what the data collected says about you.
Apple recently started cracking down on tracking permissions, forcing that “Allow Tracking” dialog to now appear when the app requests the permission. You now have to give explicit permission to opt-in to tracking. What they do with this information is up to them at that point, however it is mainly used for the aformentioned target ads.
Apple themselves puts it fairly well in this video https://www.youtube.com/watch?v=Ihw_Al4RNno.
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