A cookie is a piece of information in the form of a very small text file that is placed on an internet user's hard drive. It is generated by a web page server, which is basically the computer that operates a web site. The information the cookie contains is set by the server and it can be used by that server whenever the user visits the site. A cookie can be thought of as an internet user's identification card, which tell a web site when the user has returned.
Cookies are stored on the computer's hard drive. They cannot access the hard drive - so a cookie can't read other information saved on the hard drive, or get a user's e-mail address etc. They only contain and transfer to the server as much information as the users themselves have disclosed to a certain web site.
A server cannot set a cookie for a domain that it is not a member of. In spite of this, users quite often find in their computer files cookies from web sites that they have never visited. These cookies are usually set by companies that sell internet advertising on behalf of other web sites. Therefore it may be possible that users' information is passed to third party web sites without the users' knowledge or consent, such as information on surfing habits. This is the most common reason for people rejecting or fearing cookies.