Cookies are small text files stored on a user's hard drive by web servers to track user interactions and maintain information across web pages. There are different types of cookies, including session cookies, persistent cookies, secure cookies, and third-party cookies, each serving various purposes such as user identification, online shopping cart functionality, and personalized advertisements. While cookies enhance user experience, they also pose drawbacks such as security issues and inaccuracies in user identification when multiple browsers are used.