Both.
Ambient display because, when the phone is sitting on its back on my desk and a notification arrives, I can glance over and quickly see what it is and whether it requires immediate attention.
LED because, if I wasn't near my phone when a notification hit, I will still know about it immediately upon returning to my desk and seeing the notification LED flashing. Apps such as Lightflow or Light Manger make this even more useful as I can program different LED colors/pulsing for different types of notifications.