Cookies have gotten quite a bit of attention in the past, and even made it into the mainstream press several years ago, so they are really "old news" these days. But they do hold the distinction of being a tool that unscrupulous Web designers use to spy on their visitors, so an explanation is in order.
A cookie is really nothing more than a small text file with a bunch of codes in it that the Web site causes to be saved on your PC. The codes are usually benign: after all, the original intent of cookies were to allow the user to make one-time configuration settings that the Web page could access via the cookie to reset those preferences without asking you again. The great majority of cookies are still used solely for that purpose. For instance, this is the text from a cookie I got after a recent visit to Hewlett-Packard's Web site looking for printer drivers:HPTag
However, there are people out there using cookies for less savory uses. For example, marketing wonks pay other companies to use their Web sites and collect information from cookies on multiple Web sites, often in conjunction with Web Bugs, to try and gain insight into who you are, where you go on the Web, and what you do while you're there. They then use that information to target you for advertising (spam, mostly!). Even worse, they sell your information to others so they can spam you too, or spy on you for other, even less savory reasons!