A cookie is a small snippet of information sent from a web server to a user’s browser, which then stores it. On subsequent access to the same web server this server can then read back this information snippet and use it to “recognize” the user. These are an extension of the “Hypertext Transfer Protocol” (HTTP). This protocol makes surfing possible by allowing the requested web page to be delivered from the relevant server to your computer and then displayed in your browser. They are, normally, stored as Text Files in the C:\Users\username\Cookies folder. You can read them with notepad, or use WinPatrol for reading and managing them. But to know where Internet Explorer stores Cookies in Windows 7 and Vista, visit this in-site page.

First Party Cookies are generally used to personalize your experience with a website, whereas, any cookie used by a web site, OTHER THAN, the one you are currently visiting is referred to as a 3rd Party Cookie.

The Dark Side of Cookies : If you provide your proper name, address or other details, when registering on some website, you should not be surprised when masses of personalized advertising material suddenly begin to appear in mailboxes. Such information stored in your cookies can be accessed by others ! These are called as Tracking Cookies. Disabling the use of Cookies can sometimes make some web pages un-renderable.

But its not a bad idea to set your browser block 3rd Party Cookies, which are nothing but Cookies from another website requested via an embedded advertising banner. These have no benefit to the user as they are only used for data gathering purposes. Nice read here at a-squared.

Again they could be Session Cookies or Persistent Cookies. The former are temporary and deleted after you close down your IE, whereas the latter are more permanent in nature and store you sign-in details and passwords.

When you access any web site, IE compares the site’s compact privacy statement, with your expressed privacy preferences. Based on it, it then accepts, restricts or blocks the cookies.

IE 7, like IE 6, also supports the Platform for Privacy Preferences (P3P) standard. This enables IE to filter cookies. It can block or admit cookies on the basis of their content and purposes, in accordance with your stated privacy preferences.

To customize your cookie handling, Open IE > Internet Options > Privacy Tab. here you can use the slider to choose one of the following options:

• Block All Cookies
• High
• Medium High
• Medium
• Low
• Accept All Cookies

Medium is the Default setting, and its best to stay with it.

More on How To Block or Allow Cookies here at Microsoft.