Trusted Pipeline put together what we hope is an easy to understand explanation of cookies, how they work, and how they are used in advertising.
TP's Cookie Overview

Here's a nice excerpt about cookies from Mark S. Merkow's book "The E-Privacy Imperative: Protect Your Customers' Internet Privacy and Ensure Your Company's Survival in the Electronic Age". It includes myths about cookies.
Book excerpt on privacy & cookies

Wikipedia's entry for cookies. There is some good information here, including reference on how cookies can be stolen.
  Wikipedia's Entry for cookies

Here's another Wikipedia reference to cookies pointing out that though cookies are often detected with anti-spyware programs, they are not spyware by any means.
  Wikipedia Spyware/Cookie Reference