Spyware are programs that monitor a user's web browsing activity and then report this information to a remote computer without the express permission of the user. This information would then be analyzed by the company to offer new services or advertisements to the end user. This information may also be sold to other companies for market analysis and the creation of targeted advertising campaigns. The term Spyware has also been expanded to include any application that phones home, or transmits data to a remote location, without your express permission or knowledge.
Malicious Spyware has also evolved to transmit personal data such as login names, account passwords, and other personal information to a remote location. This information will then be used for identity theft or other criminal activities. Spyware of this type are typically much more difficult to remove and tend to utilize other malware to protect itself from removal. These types of Spyware are those targeted by anti-spyware and anti-virus program.
The transmission of program usage, errors, and other information is also very common in legitimate applications. Companies, though, package this type of behavior in phrases such as helping them improve the program or to allow them to offer you a better end user experience by transmitting usage information back to them. The difference, though, is that these legitimate applications ask you first and allow you to opt of these types of programs. If you do not allow it, then the programs will not send any information to a remote location.
It is also not uncommon for Freeware programs to include Spyware and Adware in their programs as a way of generating revenue. Therefore, when downloading a program that is considered Freeware you should always read the program's End User License Agreement, otherwise known as EULA. This license agreement should be shown before you install the software and will state whether or the program will transmit personal information from your computer to a remote location. From the information in the EULA, you can then decide whether or not you wish to install the program.