It's competition, I guess, but not completely direct competition. It really sounds more like Sprinks than AdSense.
Sprinks worked well for certain topics but not for others, and I expect the same will be true of Kanoodle Kontext. For example, if you're selling rail passes or car rental in Europes, your ad might be of interest to readers of any site about European travel or single-country travel in France, Germany, Italy, etc. But if you're selling vacation rentals on Ibiza or a B&B in Lyon, Google's AdSense is likely to work a lot better because your product and prospects are so narrowly targeted.
IMHO, the program's biggest challenges will be how to reach critical mass and how to win the interest and trust of mainstream advertisers and media buyers.