'Spyware' is similar to a virus but with some differences. It will secretly hide itself on your computer without your knowledge like a virus does, but most of the time it doesnt hack its way on to your computer via a website or an email like a virus would, but most likely it was hidden inside some free software which you installed and thought was totally legitimate.
Its purpose is to gather information about you, usually your bank details or your credit card number. It will monitor what your doing on the web, and wait patiently for you enter some credit details or anything that looks like a password in to a web page, as to copy this information.
Once it has this information, it will secretly transmit the information to the creator of the spyware program.
Spyware can often not do its own job properly and cause problems with you computer. Your computer would start to slow down and sometimes crash.