Yes, they know everything you do. Even if you just Google something, it's logged. It's worse in England where even all telephone calls are monitored!

You may be able to protect yourself using a Proxy Server or maybe by running a virtual partition like Sandboxie. This one is real easy to use and a real good idea for iffy stuff.
http://www.sandboxie.com/

Hi Lighthouse. I am law abiding, that's why nobody needs to snoop on me. I don't think there is anything wrong protecting yourself from the "bad guys". There is nothing illegal in that. Just good technologies to keep you out of trouble. It just makes it a little more difficult or impossible for the "snoopers" - whoever they are.

Hi DLZ, Where have you been? We missed you. " ISP " is Internet Service Provider - your phone or cable company that you use for surfing the net.
Suggestion: Stuff like that you can Google and look it up in Wikipedia

Lighthouse, do you have your sarcastic day today?