A cookie is a piece of data ( a small text file) sent to your computer by a web server. This data is temporarily stored with your browser. Ever wonder how online shopping malls remember what you have added to your cart, they use cookies. 

Some cookies are set to expire when you close your browser others are stored in your computers memory so that every time you open your browser this data can be accessed by the web server that sent it to you.

Cookies & Netscape Navigator
You can decline to accept cookies if you choose to. To know when a web server is trying to send a cookie to you, go to the Protocols section under Network Preferences in Netscape Navigator 3.x, check Show an Alert Before Accepting a Cookie. If you're running Netscape Navigator 4.x, you can refuse all cookies by setting an option in the Advanced section of the Preferences.

Cookies & Microsoft Internet Explorer
You can specify different settings for different security zones with Internet Explorer. You can allow trusted web sites to create cookies by adding the sites to your list. With other sites Internet Explorer will prompt you before creating cookies. You can refuse all cookies from sites in your Restricted sites zone. To disable cookies completely simply click on Tools then select Internet Options, click on the Security tab & finally click on Custom Level. Select disable cookies. On the Macintosh OS select Edit, then Preferences, cookies can then be disabled under Receiving files.

What Can Cookies Really do?
Cookies extract information from your browser.  But personal information cannot be extracted, for example your e-mail address, other cookies you have stored on your computer and files.   Malicious users have found loop holes in the framework of some browsers hence they can use cookies to abuse your computer. Patches are always being put out to fix these problems, always keep your browser up to date.