Except it does. It has the functionality to do BOTH.
The tagline of giving the option to either disable ads or replace ads is to provide a way to enjoy an ad-free experience or to receive only optimized advertisements.
A big reason some users dislike ads isn't because of their entire existance but rather their tendency as of late to be malware-ridden or cause drops in webpage performance. These are the things that cause some users to enable ad-blockers, and Brave is the only way I've heard of that has pushed the envelope of a BETTER ad experience.
From their blog, the first is a great introduction to what Brave is about[1], as well as their response to an attack on their ad-replacement ideology[2].
[1]:https://www.brave.com/how-brave-works-for-you/
[2]:https://www.brave.com/braves-response-to-the-naa-a-better-de...
Also a quote directly from Brave:
[The user interface] shows the major choices that Brave enables:
You’re game to try our default mode of operation, for a better ad-supported Web. Just leave the Replace Ads item checked. This is the default mode of operation. We insert ads after blocking without hurting page load speed, and those ads will support the sites you browse. We choose ads based on browser-private user data with no remote tracking — not even by our servers.
You want to block all ads and trackers, but you’re not sure about our plan to insert better ads with high performance and privacy. You can do this with Brave by checking Block Ads. We want you on board even if you’re just blocking everything.
You’d like to try Brave without ad blocking or replacing, to get whatever ads and trackers you would experience in other browsers. Check Allow Ads and Tracking. We still protect you with HTTPS Everywhere and other defense by default.