DNS66: OSS ad blocker for Android that works for all apps (no root needed) (github.com)

It says it creates a VPN service. Does it mean on the phone itself? Or is this connecting to an external VPN that is reading all of my DNS traffic?

This app works very well on Android. I've been using it for many months now. It creates a local VPN connection and only funnels DNS requests through it. You can specify which block lists to use and exclude certain apps if the cause issues. By default certain apps with known issues (like Gmail) are excluded. And of course the best part of all is that it does not require root. That and it's open source so you can install it from Fdroid for auto updates.

DNS66 is neat and works like a charm.

If you want more features like per-app internet control, different profiles for wifi/lte/roaming, per app logging, etc then NetGuard is for you:

https://github.com/M66B/NetGuard

note: hosts based blocking is only included in the pro plugin in the github version due to Google restrictions in the play store.

How does it fare against "Blokada" (also FOSS + no root required) in terms of battery use and features?

Its free, open source and it works in all the apps I use like BBC and YT. No noticeable impact in battery.