It works at the DNS level, i.e. DNS requests to ad network domains are blocked. It is not able to block first party tracking requests like ad blocking browser extensions can.
As a general rule of thumb, I consider DNS-level blocking like pi-hole a defense-in-depth strategy only. It's great for situations where you cannot install a regular blocker plugin (e.g. IoT, or webpages inside applications instead of in a browser), but if you can, you absolutely want to use a dedicated tracking blocker in addition to pi-hole.