Either pihole or ublock origin blocks them. That's what I use and I never see them.
I know ublock origin does because I have been using that on my systems and never see them.
No, it blocks DNS requests and YouTube ads are served from the same DNS used by the actual YouTube video.
It doesn't work for me at least. I still see a ton of ads on the youtube app on all of my Roku devices. I heard that it works for some people so maybe i'm hitting domains that aren't in the blocklists due to my location?