Some interesting stuff to review here: Behavioral Advertising: Industry Practices and Consumers’ Expectations. Ed Felten was on the witness list, and he gives a nice synopsis of the technology, with the following conclusion:
Citizens are rightly concerned about the possibility that commercial entities will build extensive profiles of who they are and what they do online. Ad services are not the only parties who can assemble such profiles, but large ad services do have a prime opportunity to build profiles, due to their relationships with many content providers who can pass along information about users, and due to the ad services’ ability to connect the dots by linking together a user’s activities across different web sites.
All of this is possible, as a technical matter, which is not to say that responsible ad services do all of it, or even most of it. Ad services may be restrained by law, by self-regulation, by social norms, or by market pressures. What is clear is that technology, by itself, cannot protect users from broad gathering and use of information about what they do online.