"To help us deliver interesting paid or sponsored content or promotions, you agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you."
But don't worry, no photo taken before January 16th will be showing up in an ad, so you don't need to start wiping your account clean.
Jenna Wortham and Nick Bilton at the NY Times have created a helpful list of what this means to you, the Instagram user. They point out that Instagram can share information about its users with Facebook, as well as affiliates and advertisers; that you can show up in an ad without being notified (even if you are a minor); that ads may not be labeled as such; and that the only way out is by deleting your Instagram account. Guess those new Twitter filters aren't looking so bad now?
UPDATE: Instagram takes it all back.