You go to Google and enter your search term. Big Brother, the totalitarian character from George Orwell's novel 1984, watches with detached interest. You see, to Big Brother, you are only a number—but he'd like to know as much about you as he can.
Knowing you allows Big Brother to do many things—both good and evil.
Alright, enough of the "Big Brother" comparison—it's been done many times before (and done many times better). However, there is an important central point to be made about personalized search.
Google is now (and has been for some time) collecting data on individual users, and they are assuming that users will trust them with this data to "Do No Evil," as their famous slogan goes. Only time will tell whether the trust is well-placed or people are willing to trust search engines with this type of data at all.
The basic principle behind personalized search is simple. When you go to Google and type in a search query, Google stores the data. As you return to the engine, a profile of your search habits is built up over time. With this information, Google can understand more about your interests and serve up more relevant search results.
For instance, let's say that in your search queries you have shown an interest in the topic of sport fishing, while in his search queries your neighbor has shown an interest in musical instruments. Over time, as these preferences are made clear to the engine, your personalized search results for the term "bass" will largely be composed of results that cover the fish, while your neighbor's results for "bass" will be composed of results that primarily cover musical instruments.
At present, you need to have signed up for a Google service for your results to be personalized. Such services include Gmail, AdWords, Google Toolbar, and many others. By default, as long as you are signed in to one of these programs, your personal search data will be collected.
The term "at present" is used because Google certainly could implement personalized search on any user of the engine, regardless of whether he or she has a Google account. Google already places a cookie, or unique identifier, on the machine of anyone who types in a search query on Google—it would not be hard for it to use that information, rather than the Google account, to collect individual user data and personalize results.