A cookie is a custom file which is created in your computer when you access websites.
The cookie contains sensitive data, which is used to validate you and authorize you for logging in to the website and it also contains other information which you have submitted to the site.
For example, when you are logged in to your Gmail account and if you open orkut or blogger in the same browser then you will not be asked to enter user name and password again, and you will be directly logged in to the service. This is because when you signed in to Gmail, a Google cookie is already put in your browser to validate you. So if you access other Google services you will be validated automatically.