Spyware is a term used to describe software that performs certain behaviors without appropriately obtaining your consent, such as advertising, phishing & pharming, and changing the configuration of your computer. Spyware is often associated with Adware or software that tracks personal info.
Dangers of Spyware
Spyware may make annoying changes to your computer that can cause your system to slow down/crash, change your Web browser's home page or search page, or add unwanted components to your browser. They also make it very difficult for you to change your settings back to the way you had them. 
Steps to Help Prevent Spyware
Use a firewall: Although most Spyware (and other Malware) come bundled with other programs or originate from dangerous web sites, a small amount of Spyware can actually be remotely placed on your computer. Installing or using firewalls decreases your chance of obtaining any kind of Spyware.
Keep your software up-to-date: Use Windows Update (Start -> All Programs -> Windows Update) to make sure that you've downloaded and installed all the latest updates and patches needed to keep your computer safe.
Adjust your browser's security settings: In Firefox, click on Tools, then click the options; go to the security tab and make sure "Block reported attack sites and web forgeries" are checked. In Internet Explorer, adjust your security settings by clicking on Tools > Internet Options; select the Security tab and adjust the security level to Medium-High or High.
Never open "free deal" offers: Most "free deal" offers are entirely fake, and will only damage your computer with scumware when you click on them.
Read the EULA: All programs that you install should have an End User License Agreement; you should always read this before installing the programs, because sometimes other "programs" will be installed, when you only want one program.
Tips to surf the web more safely: Only download programs from trusted websites. If you're not sure whether to trust a program, enter the name of the program into a search engine to see if anyone else has reported that it contains Spyware. Read all security warnings, EULAs, and privacy statements associated with any software you download. Click the red "x" in the corner of the window or press Alt + F4 on your keyboard (CMD + Q in MAC) to close a window. Be wary of torrents, and understand all of the software packaged with those programs. Use a standard user account.
Most kinds of malicious software, are designed to be difficult to remove. If you try to uninstall this software, you might find that the program reappears as soon as you restart your computer. Microsoft Security Essentials is a free consumer anti-malware solution that will help you remove Spyware. It's available as a no-cost download for Windows XP SP2 and higher Windows OSes.