Spyware is a type of malware that performs certain behaviors such as advertising, collecting personal information, or changing the configuration of your computer, generally without appropriately obtaining your consent first.
Spyware is often associated with software that displays advertisements (called adware) or software that tracks personal or sensitive information.
That does not mean all software that provides ads or tracks your online activities is bad. For example, you might sign up for a free music service, but you "pay" for the service by agreeing to receive targeted ads. If you understand the terms and agree to them, you may have decided that it is a fair tradeoff. You might also agree to let the company track your online activities to determine which ads to show you.
Other kinds of spyware make changes to your computer that can be annoying and can cause your computer slow down or crash.
These programs can change your Web browser's home page or search page, or add additional components to your browser you don't need or want. These programs also make it very difficult for you to change your settings back to the way you originally had them.
Aside from the questions of ethics and privacy, spyware steals from the user by using the computer's memory resources and also by eating bandwidth as it sends information back to the spyware's home base via the user's 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 the user 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.