How a Website Can Track Your Movements
No, I haven't become a paranoid privacy freak ready to purchase a cabin in Montana. This is just something that struck me as I opened my browser today. My default home page is http://my.yahoo.com/. Thus when I open my browser, the following information is sent to a Yahoo! server via HTTP (HyperText Transfer Protocol. The rules for sending and receiving data between a browser and website) (note: some data omitted for brevity).
GET / HTTP/1.1\ Accept: */*\ Accept-Language: en-us\ Accept-Encoding: gzip, deflate \ User-Agent: Mozilla/4.0 ... \ Host: my.yahoo.com \ Connection: Keep-Alive \ Cookie: B=1note6p0p3843&b=2;...
Notice that the last line is labelled Cookie and there's a bunch of data that comes after it (which I omitted). That data is the infamous cookie data you no doubt have heard about. It probably contains some sort of identifier which Yahoo!'s servers use to look up my personalized information in a database, thus rendering a page just for me using my settings (hence the name my.yahoo.com and not your.yahoo.com).
So far so good, it's really quite benign. But what you don't see in the HTTP request is the TCP/IP data. Simply put, TCP/IP is the underlying protocol used to send and receive HTTP messages across the web. As you know, every computer connected to the internet has an IP address (the IP of TCP/IP) which uniquely identifies that computer. When joining a network, your computer will often have an IP address dynamically assigned to it. Right now, my IP address is 184.108.40.206.
Without getting into the nitty gritty, it's enough to know that blocks of IP addresses are assigned to ISPs in huge blocks. Different blocks also tend to be allocated to various geographic regions. Thus Yahoo! can lookup my IP address in some database and figure out that I'm in Japan. In fact, that's exactly what they did as when I opened my browser, I noticed that the ads were in Japanese.
When I saw those ads, it occurred to me that any website I visited via my laptop using cookies could corroborate the fact that I'm in Japan. Of course, it might be easier to discover that fact by just reading my blog.
As far as I know, this isn't a perfect means to obtain your whereabouts. There are anonymizer services out there that can hide your true IP, though the anonymizer service itself will know your IP.