Craigslist may dominate the classifieds business by sheer audience numbers with 46.8 million uniques (via Compete), but Oodle is making headway among the larger, higher-profile properties. The latest evidence is Oodle’s deal to run AOL Classifieds.

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AOL (NYSE: TWX) says the combination of its own local search ads—which run on AOL Autos, Jobs, Personals and Real Estate—with Oodle’s network, gives users access to more than 40 million listings across 80,000 sites. (Oodle has 3.4 million uniques.)

It’s familiar territory for AOL, as the company stopped powering it own classifieds in 2005 and chose to become a listings aggregator instead. It’s now getting back into the game not primarily to generate revenue (the ads are free) but apparently more as a way to build traffic.

The potential for deals like this is likely what helped Oodle pick up the $5.6 million in funding it announced two weeks ago. Oodle already powers classifieds for Facebook, MySpace, Wal-Mart and Comcast. Release.