Overview

Aiming to protect its users against traffic analysis attacks, volunteers operate an overlay network of onion routers that enable anonymous outgoing connections and anonymous "hidden" services.
[edit]Anonymous outgoing connections

Users of the Tor network run an onion proxy on their machine. This software connects out to Tor, periodically negotiating a virtual circuit through the Tor network. Tor employs cryptography in a layered manner (hence the onion analogy), ensuring perfect forward secrecy between routers. At the same time, the onion proxy software presents a SOCKS interface to its clients. SOCKS-aware applications may be pointed at Tor, which then multiplexes the traffic through a Tor virtual circuit.
Once inside the Tor network, the traffic is sent from router to router, ultimately reaching an exit node at which point the cleartext packet is available and is forwarded on to its original destination. Viewed from the destination, the traffic appears to originate at the Tor exit node.
Tor's application independence sets it apart from most other anonymity networks: it works at the TCP stream level. Applications commonly anonymised using Tor include IRC, instant messaging and browsing the Web. When browsing the Web, Tor is often coupled with Privoxy – a filtering proxy server – that aims to add privacy at the application layer.
Not all Tor nodes are equal. Tor directory authorities describe nodes with several flags: DIR, Running, Guard, Authority, Fast, Exit, Stable, Valid, V2Dir, BadExit, BadDirectory. To start with, there are Tor Authority servers which are usually Stable but do not act as an Exit Node. There are Tor Exit Nodes, and the ones with Stable IP addresses announce themselves as such.[edit]Anonymous outgoing connections

Users of the Tor network run an onion proxy on their machine. This software connects out to Tor, periodically negotiating a virtual circuit through the Tor network. Tor employs cryptography in a layered manner (hence the onion analogy), ensuring perfect forward secrecy between routers. At the same time, the onion proxy software presents a SOCKS interface to its clients. SOCKS-aware applications may be pointed at Tor, which then multiplexes the traffic through a Tor virtual circuit.
Once inside the Tor network, the traffic is sent from router to router, ultimately reaching an exit node at which point the cleartext packet is available and is forwarded on to its original destination. Viewed from the destination, the traffic appears to originate at the Tor exit node.
Tor's application independence sets it apart from most other anonymity networks: it works at the TCP stream level. Applications commonly anonymised using Tor include IRC, instant messaging and browsing the Web. When browsing the Web, Tor is often coupled with Privoxy – a filtering proxy server – that aims to add privacy at the application layer.
Not all Tor nodes are equal. Tor directory authorities describe nodes with several flags: DIR, Running, Guard, Authority, Fast, Exit, Stable, Valid, V2Dir, BadExit, BadDirectory. To start with, there are Tor Authority servers which are usually Stable but do not act as an Exit Node. There are Tor Exit Nodes, and the ones with Stable IP addresses announce themselves as such.
Wikipidia

Originally posted by schrodingers dog
reply to post by The Utopian Penguin

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So basically, if I understand everybody correctly, there is no way on god's green earth to truly be anonymous on the internet.
And if I understand 12m8keall2c, we are more vulnerable through our surfing habits rather than any individual post.

[edit on 22-6-2008 by schrodingers dog]