In general, spyware is a software that secretly gathering personal information from the user's computer without their knowledge. The spyware can usually run in the background gathering information about anything you do on your computer and then uploading that information back to internet server.
The ways that spyware gets into your computer can be the result of installing a new program, usually bundled within "freeware" or "shareware". This way, the developers will get paid from selling gathered information as marketing information to interested parties.
BulletProofSoft Process Library is the ultimate resource to help you determine if your computer is infected with spyware, adware or viruses.