Correct, they used to display regular ads on their website (but never in the actual games) for those users that did not purchase the Premium subscription. Users with the premium subscription would then see only user-created ads for user-created content.

It was honestly quite jarring and this new approach is better for developers on the platform, as they can reach way more people.

exact opposite, they've made a 180 on advertising. there used to be external offsite ads shown on the website, which were removed. there used to be a developer API to show video ads for revenue within games, which was removed. they've cut down heavily on event promotions from companies (think movies that appeal to kids)

they have an extremely high revenue business model off actual customers, so they don't really need to do advertising, there's plenty of other ways to get more profitable.

for example, they're at the scale where they might be able to do what Dropbox did by running more of their own infrastructure to save big.