There is a lot of misunderstandings these days as to the differences between Adware and Spyware. When you set to include other forms of "wares" to the equation things can get even more complicated. For instance, the word Malware just makes thing that much more confusing. At the end of the day, the effect is a lot of confusion and a little worry in regards to seeing anyone of those terms.
Example number one:
Imagine you download software product off of the internet. A lot of the times you can get software that is totally free. The only catch is that it is going to show advertisements whenever you use the application. This is how the software's maker is going to make their money so they can afford to just give things for free. Now whenever you execute the program you see little banner ads within the application, but other than that the ads don't show up in any bothersome way.
Example number two:
In this instance you'll download software from the net. The software is free as in the last example. For all intents and functions things will appear the same. You are even notified rather clearly that the ads will show up. The problem is that ads appear in ways you never actually imagined. They pop up even when you aren't utilizing the software you downloaded and the ads happen to be intrusive and bothersome.
Example number three:
Here is where you don't really mean to download anything at all. Or, you download something but aren't informed in any way that you will be shown advertisements on your computer screen in any form. Yet, ads start appearing whenever you use your PC. Sometimes you exit out of them and they just come back. You try to get rid of them by uninstalling them however you can't figure out any way to do it.
All of those cases deal with adware. It's software that is programmed expressly to show advertisements on your screen. Inherently there is nothing basically wrong with this and as seen in the first example it's always something that you accept. Unfortunately, as with the second example, it's often something that provides more than was promised.
The latter two examples involve what is called as malware. Adware is not always malware and vice versa, but the two are often packaged together. Malware is actually software that operates on your computer in a dreadful manner. In some situations, as with the second example, it is merely a nuisance, but in other positions it can actually cause a lot of damage.
As for spyware, well, that can basically exist in any one of the above examples. Spyware is any sort of software that tracks things that you do on your system. For the most portion it is malicious. That said, in some cases the type of software stated in the first example will clearly express that it uses spyware, although it will say so with softer terms.
In its less harmful incarnation, spyware simply tracks what you do in terms of websites you visit. It then uses that particulars to send you the most suitable ads. In its more harmful incarnations spyware can track more personal details than that, and can even send criminals information about your passwords etc.
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