Spyware is any software that gathers your information through your Internet connection without your knowledge, usually for advertising purposes. Spyware applications are typically bundled as a hidden component of freeware or shareware programs that can be downloaded from the Internet. Once installed, the spyware monitors your activity on the Internet and transmits that information in the background to someone else. Spyware can also gather information about email addresses and even passwords and credit card numbers. Spyware is similar to a Trojan horse in that you unwittingly install the product when you install something else. A common way to become a victim of spyware is to download certain peer-to-peer file swapping products that are available today. Aside from the questions of ethics and privacy, spyware steals from you by using the computer's memory resources and also by eating bandwidth as it sends information back to the spyware's home base through your Internet connection. Because spyware is using memory and system resources, the applications running in the background can lead to system crashes or general system instability.
Because spyware exists as independent executable programs, they have the ability to monitor keystrokes, scan files on the hard drive, snoop other applications, such as chat programs or word processors, install other spyware programs, read cookies, change the default home page on the web browser, consistently relaying this information back to the spyware author who will either use it for advertising/marketing purposes or sell the information to another party.
Licensing agreements that accompany software downloads sometimes warn you that a spyware program will be installed along with the requested software, but the licensing agreements may not always be read completely because the notice of a spyware installation is often couched in obtuse, hard-to-read legal disclaimers.