Security and privacy is a big issue on the internet. Slowly and streadily all the casual internet users are warming up to things like spyware and browser hijacking, over existing threats such as viruses, which is a good thing. Any self respecting surfer shouldn't use Internet Explorer, at least not the current version, but only using Firefox alongwith anti-spyware solutions, such as Ad-Aware or SpywareBlaster, is only a part of the battle won.
Even if you get rid of your cookies every five minutes, you're still leaving behind a trail of your browsing habits, not on your own PC, but on the servers that host the sites you're visiting, and all the nodes in between.
Let me back track a little.
The Internet
The Internet is a network of computers connected to each other, but not directly to each other. A computer, called a node, in Mumbai isn't directly connected to a node in New Delhi, but they are still able to access each other because the connection from Mumbai "hops" from router to router all the way till it reaches the other one at Delhi. All the routers in the middle can store logs of your visits by your IP addresses. A connection typically uses the same route for an entire session, increasing the chances of someone sniffing packets and tapping into your internet interests.
The following picture demonstrates typical internet flow. The amber node is the source that initiates the connection (i.e. typing in a website url, etc.) and the green one is the destination (i.e. the node that hosts the website you're trying to visit). The red line indicates a typically unencrypted line of communication between normal nodes on the internet.
This is what the Tor network aims to prevent.
no 
