Last year, there were talks about an alliance between Google and Yahoo. It seems they did work out something. Sources say Google is set to begin running some of its AdSense display ads on Yahoo sites, and will become one of several ad networks Yahoo uses to fill some of its pages.
So, basically Yahoo will have a relationship similar to other publishers and Google where they give Google access to some of their unsold inventory and Google inserts small ads on behalf of its advertisers.
Last year, Google and Yahoo had lengthy discussions about a more involved ad tie up, including a scenario where Yahoo would essentially hand over its ad serving operations for all of its lower-priced ads directly to Google.
Here is the official blog post from Yahoo on this matter.
Yahoo has a long-term deal with Microsoft to handle its large search ad business. It will be interesting to see whether the AdSense ads will lead to something bigger.