Why and how do ads follow me around the Internet?

Behavioral retargeting

Companies try to retarget users who have already seen their products on a website. If you don’t buy the product at first, these companies use “ad remarketing” to show those products to you again and again

Companies drop pixels or cookies to track you
Each time you visit a site, it drops something called a “cookie” on to your Web browser. That cookie, which can stay for up to a month, is anonymous. The site doesn’t know who you are, or anything about you, but it knows you looked at that shirt. Then the site can purchase ads through a number of retargeting companies acting as middlemen, selling the ads aimed at you, the anonymous shopper, on behalf of news sites, blogs and even Facebook
They collect your browsing history and your search history
This data gets compiled and profiled into behavioral categories
data is collected, analyzed, and used to target us with relevant ads, and it can also be used in other ways
websites scan check and identify all trackers including cookies, tracking pixels, and beacons

based on your browsing history
it uses sophisticated demographic and location data to serve up ads. “It’s like they’re stalking you,” says Court. “They put all sorts of circumstantial evidence together, and you’re marketed to as if they’re listening to your conversations.”

The ad auction is how Google decides which ads to show and how they’re positioned
Even if you delete all or some of your activity, Google still maintains records about the way you used its web browser related to the deleted data — if you search for something, it’ll remember that you searched for something at that specific time and date, but not what you specifically you searched for

In early 2021, Google revealed that it’s going to stop targeting online ads based on a user’s browsing history. The company also said that it won’t be building any tools that can keep track of specific user data across products.
2022: different European Data Protection Authorities all come to the same conclusion: the use of Google Analytics is illegal

No, websites can’t trace that unique IP address to your physical home or business address
Instead, websites can tie your IP address to your internet service provider, city, region, and even possibly your ZIP code. This is why you see ads for local businesses in your area online