CL users flag postings they find to be in violation via the "prohibited" link at the top of each posting.
Free classified ads sufficiently flagged are subject to automated removal.
Postings may also be flagged for removal by CL staff or CL automated systems.
Of course no moderation system is perfect, and a small percentage of ads removed are compliant.
Flagged postings that comply with the TOU may be reposted, reworded as necessary.
For help from CL users regarding flagging, visit flag help forum, and follow the instructions there.
Funny or memorable postings may be nominated for "best of craigslist" via the "best-of" link.