Similar to an advertorial, a paid guest post involves allowing an author to write a guest post on your blog for money (or another form of compensation). Unlike an advertorial, the links will often be dofollow links - directly violating Google's terms of service.

Advantages: Of all the monetization techniques that are focused around editorial, this has to b the most profitable.

The fact is that most reputable blogs will not do this kind of thing, so it's not easy to find good quality sites to pay for a guest post on. As a result, you can charge a premium.

Disadvantages: The main one here is that you seriously risk a slap on the wrist from Google (or worse). Not only that but you're leaving the editorial integrity in the hands of someone else - 9/10 times it will be produced by a generic content writer and won't always be the best quality.

I'd say that if you're going to go down this route, do it at your own risk. Either way, it's not going to be the most sustainable monetization strategy.