While that is the most basic definition of a VPN, Jumbo probably uses the same kind of ad-blocking as other VPNs:
VPN services handle ads by blocking or redirecting DNS requests to advertisers’ servers. They usually use their own DNS servers so it is relatively easy for them to control internet traffic. The browser does not show ads once these queries have been blocked.
VPN providers block malicious adware and tracking cookies by using third-party lists. There are third-party services that have huge lists of malicious domains and IP addresses. These lists are continuously renewed and VPNs pay money to use them.
The ads can be blocked by redirecting advertiser networks IP addresses so it can not be resolved. For example, redirecting to “localhost” or 0.0.0.0 ads show a message that “the website is not reachable”. Such redirects can happen on the server, app, or browser extension level.