How does Google know everything about you?
They don’t.
Google only knows your public information (are you listed in the phone book?), what you put out there on the internet publicly, and what you tell Google directly via means of using one of Google’s products (YouTube, Panoramio, Gmail, etc.) This means that for whatever you put out there on the public internet, Google can index indefinitely as long as it exists.
The Big Question however is: Does Google sell the data it indexes about you?
Short answer:
No (mostly).
Long answer:
The best way I can explain this is by citing two specific Google products, Gmail and YouTube.
GMAIL
All emails you send and receive are machine-read in order to deliver what’s called "relevant advertising" while using the Gmail product in the browser (meaning not IMAP or POP3). When the machine-reading reads specific words, be they in the subject line or body of the message, ads are displayed relevant to those words. For example, if you received an email with the word Florida in it, you’d probably see an ad about Disney World in Gmail. That’s not coincidence.
YOUTUBE
When you sign up for YouTube you are prompted to enter in some demographic information (age, location, etc.) If you do this, the video ads you see on YouTube on specific videos may be specific to your demographic.
THE REAL BIG QUESTION
The Real Big Question is: Does showing relevant ads per your email content and/or demographic information count as your personal information being sold?
If you want to get really technical about it, yes – but barely, and I mean barely. Your information was indirectly (keyword there) given to advertisers by means of Google’s advertising system to deliver relevant advertising to you. However it is very important to point out that only Google knows what you gave them, and furthermore the advertisers that use Google’s advertising system do not know you as a person unless you actually buy something from start to finish from click-through of the ad (ex: Click ad, hit is tracked, you buy product, you give company your info to buy the whatever-it-is, that data is recorded by the company you bought the product from).
Put in much simpler terms: Unless you actually clicked through the ad and bought something, you are nothing more than a demographic statistic. Google still knows what you gave them for personal info, but the advertisers that use the Google advertising system do not.
It also should be noted that if you don’t click the ad, not even your demographic information is given out and are merely counted as a faceless, nameless "ad impression", and that’s where the ‘just barely’ comes in concerning the sale of your personal information.
If you consider the fact you are counted as an ad impression by using Google products, then by all means, wear that tin foil hat proudly because your personal info was sold and the fuzz is going to kick in your door any day now for illegally downloading that copy of Smokey and The Bandit.
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