Yes, we use the self-hosted wordpress which you can download from wordpress.org, and yes you need to get a domain for starters, and you will probably want to use a customized theme for your own unique look. As for ads, just take the code generated from the ad service (such as google’s adsense) and insert it to the places you wish the ads to show.

Hope that gives you an idea. Check out the simple instructions at wordpress.org if you need to start from the very basics. Good luck!