<software> (Or "adware") Any type of software that transmits information without the user's knowledge.
Information is sent via the Internet to a server somewhere, normally as a hidden side effect of using a program. Gathering this information may benefit the user indirectly, e.g. by helping to improve the software he is using. It may be collected for advertising purposes or, worst of all, to steal security information such as passwords to online accounts or credit card details.
Spyware may be installed along with other software or as the result of a virus infection. There are many tools available to locate and remove various forms of spyware from a computer.
Some HTTP cookies could be considered as spyware as their use is generally not made explicit to users. It is however possible to disallow them, either totally or individually, and some are actually useful, e.g. recording the fact that a user has logged in.