Spyware spies on you and reports on what you do with your computer (what CDs you play; what websites you visit, etc). Adware uses that information to try and make you look at targetted adverts.
Aha. Using cookies no doubt. Thanks.
Not usually - cookies can let individual websites track you to a limited extent, but for full-on Big Brother, the spyware installs itself on your local machine and hooks its claws directly into your web browser. :-)
Of course, there's the issue that most spyware is Windows-only... ;-)
S