Google needs a separate setting from the cookies that they use for privacy settings for "Ads by Google" and "Ads by AdMob" within the browser because, quite obviously, mobile apps run outside the browser.
By opting out, Google will not use the device identifier tied to your Android device to provide an end user with ads based on your inferred interests or demographics.
This doesn't get rid of ads, per se. Ad-supported apps will still display them, although there are apps for rooted devices that purport to remove those, too. However, it does remove "interest-based ads," and increases the level of privacy on your device.